Land Profit Space Narrowed, Breaking The Investment And Development Layout Of Real Estate Enterprises

? ? ? On the evening of May 20, Shanghai announced the first batch of detailed rules for centralized land supply. The new land transfer rules test the strategic vision of real estate investment and development teams, and improve the difficulty of Jiajia company to participate. The detailed rules of land acquisition in Shanghai are obviously more complicated than those in Wuxi and Hangzhou, where hot money is surging. Industry insiders believe that the funds that have not been used in the previous land auction are most likely to be concentrated in the land supply in Shanghai, which started on June 18.

? ? ? At the same time, the first centralized land supply in Nanjing completed the bidding on May 20 and May 21. Among the 52 pieces of land transferred, one was terminated for some reason, and 36 of the remaining 51 pieces of land were sold to the top and waiting for lottery. The winner will be confirmed by lottery in the afternoon of May 22. As of May 21, China Resources, China Merchants, Yincheng, Longhu, etc. have been confirmed as buyers of centralized land supply in Nanjing.

According to Li Xiaoxiao, a senior analyst at Tongce Research Institute, according to the information released in 2021, Wuxi concentrated on land supply in March, April and August; Nanjing provided land in April, July and October, Hangzhou in April, June and December. According to the results of soil photography at present, there are several obvious characteristics. The first is the obvious differentiation between cities. For example, Hangzhou and Wuxi have good urban fundamentals, strong market demand, and many real estate enterprises. The first batch of land sold is very popular with developers. Some cities in Northeast China are limited by various factors, and the first time they are photographed is relatively flat. Secondly, there are obvious differentiation in the city, which is mainly related to the location of the plot and the surrounding supporting conditions. High quality land is often sold at a high premium, and some plots in the outer suburbs of the city are also sold out. The third is the first batch of centralized land acquisition enterprises, mainly central enterprises, state-owned enterprises, regional deep ploughing companies, such as Jianfa, Xiangyu and other local state-owned enterprises. On the one hand, the central and state-owned enterprises have advantages in financing and the cost of capital is relatively lower; On the other hand, in order to maintain the sales scale, the regional deep ploughing companies will take a large amount of land every year. Taking the land from March to April this year can not only increase soil storage, catch up with the construction period, but also catch up with the marketing nodes at the end of the year to make contribution.

Compared with Guangzhou, Chongqing and Beijing, this round of land grab in the Yangtze River Delta has generally touched the red line of profit, but the heat has not decreased. What signals have been revealed?

On the evening of May 20, Shanghai announced the first batch of detailed rules for centralized land supply. The new land transfer rules test the strategic vision of real estate investment and development teams, and improve the difficulty of Jiajia company to participate- Photo by Gan Jun

Some head real estate enterprises did not stick to the Yangtze River Delta

From the perspective of Wuxi, Hangzhou and Nanjing, Vanke, rongchuang, China Resources, poly, China Merchants, Longhu and other large-scale real estate enterprises which successfully seized the land were mainly state-owned enterprises and state-owned enterprises, and local real estate enterprises such as Binjiang and Yincheng also made some achievements.

In contrast, in the top 10 real estate enterprises, country garden, Zhonghai, Jindi and Shimao did not participate in the top 10 real estate enterprises, while most of the others participated in these local auctions in the Yangtze River Delta. China shipping is very interested in the land market of Beijing and Guangzhou, but has not got a piece of land; Jindi has gained in Beijing, Qingdao and Wenzhou; Country garden also settled in Beijing; Shimao disappeared. At the performance conference in 2020, Xu Shitan, vice chairman of Shimao board of directors, pointed out that centralized land supply is a good opportunity for large real estate enterprises. Shimao also reserved some funds, hoping to participate in the centralized land supply from April to May. However, in the face of peer frantic scramble and tightening supervision, the balance in the heart of large housing enterprises has changed. Xuhui did not love to fight in the Yangtze River Delta, but chose to invest in Chongqing.

In Hangzhou, 41 out of 57 land parcels are competing for self-sustaining area, which shows that the expectation of real estate enterprises is highly similar, and it is very difficult to maintain profitability in the future. The top management team of Binjiang group, which has obtained 5 pieces of land, said in an online investor exchange recently that the net profit of the land acquired this time should be 1% - 2%; However, relevant people of Rongxin, the partner of the land acquisition consortium, disclosed that the net profit calculated by the company was higher than 1% - 2%.

Yihan think tank believes that in terms of investment, compared with that in 2019, the investment intensity of real estate enterprises is slightly reduced. On the one hand, the three red lines control the available capital scale of real estate enterprises; on the other hand, the number of cities that have carried out the first batch of centralized transfer in core cities is small, and the supply scale has decreased, resulting in the decline of investment intensity of real estate enterprises. With the orderly development of centralized transfer, the investment of real estate enterprises is expected to pick up.

A research report of CITIC Securities Research Department pointed out that the heat of land market is not caused by centralized land supply, but driven by high sales growth. In the first four months of 2021, the sales volume of key companies increased by 47.6% year-on-year, and the sales area increased by 40.2% year-on-year. Abundant sales returns and low capital cost of some enterprises make enterprises more actively enter the land market.

Shanghai's land auction rules have changed, and the expected control of house price rise is obvious. Will the large real estate enterprises without land acquisition in the Yangtze River Delta appear in the Shanghai market? There is suspense. Lu Wenxi, an analyst at Zhongyuan Real estate market in Shanghai, pointed out that 56 pieces of land were provided in Shanghai this time, 4 more than previously reported in the industry. The detailed rules of transfer reflect several problems: compared with benchmark plots, such as Daning plot, the transaction price is more than 47000 yuan / m2, less than 50000 yuan / m2, mainly to control market expectations; The new rules set a circuit breaker mechanism with a premium rate of 10%, and select the median price in the quotation as the winner, which is also a measure to control the expectation of house price rise. Some real estate enterprises estimate that the profit margin of these plots is still higher than that of Hangzhou and Nanjing. Moreover, since the centralized land supply in Shanghai is later than that in other hot cities, it is not ruled out that some enterprises transfer the funds not used up before to Shanghai, so the transaction of centralized land supply in Shanghai will be more active.

Lu Wenxi predicted that in Shanghai market, leading real estate enterprises, state-owned enterprises and central enterprises can at least get more than 70% of the market share of local auction, and the rest depends on whether small and medium-sized real estate enterprises have opportunities.

Large scale impairment risk prompted by institutions

Yan Yuejin, research director of the think tank center of the E-House Research Institute, analyzes that there are all kinds of restrictions on the land auction in cities similar to Wuxi and Hangzhou, with the purpose of controlling land prices, including the construction of rental housing projects. As far as the distribution of land is concerned, it is generally not located in the center of Taicheng, because from the perspective of residential land, it is mainly suburban land, which belongs to the land with good location advantages. Real estate enterprises adopt deep ploughing strategy, such as Rongxin.

Some of the big real estate enterprises continue to plough deep into the Yangtze River Delta, while others have not signed up, which reflects from the side that the profits of land investment in the Yangtze River Delta are declining. Li Xiaoxiao pointed out that from the perspective of the types of funds, there are more restrictions on the financing of real estate enterprises in various aspects, but there are also various types of funds entering the local auction market through packaging. Specifically, insurance capital, private capital and real estate enterprises that do not pursue scale are likely to provide short-term funds for brand real estate enterprises to pay land auction margin.

One fact is that from Hangzhou's self-reliance to Nanjing's top lottery, the increase in investment and development costs of real estate enterprises may lead to a sustained downward trend in the gross profit rate of the industry. Some securities companies remind attention to the large-scale impairment risk of real estate enterprises, and think that the local auction market will cool down in the third quarter.

Since the beginning of 2021, the industry's financial supervision has exceeded expectations, which also leads to the diversion of funds from real estate enterprises. The Yangtze River Delta is no longer a safety card in the eyes of real estate enterprises. Zhongliang Holding Co., Ltd., which has been deeply ploughed into the Yangtze River Delta, has also made no profit in various places. Relevant people of the company said that the concentrated land auction in hot second tier cities will indirectly lead to the rise of floor prices in other related cities and metropolitan cities. But there is panic in the industry. The simplest logic is: if you don't take land, there will be no goods; if you don't, there will be no sales.

Zhongliang holdings is a typical real estate enterprise with high liquidity liabilities. Such real estate enterprises no longer choose hot cities, but choose cities with lower price limit pressure and greater profit margin. For example, in March this year, Zhongliang successively acquired land in Liuzhou and Wenzhou.

CITIC Securities pointed out that under the three red lines, the expansion of credit spreads of real estate enterprises, the increase of land supply, the decline of sales speed and the increase of merger and acquisition opportunities may all push down the land market in the second half of the year. Centralized land supply is not a factor to stimulate the land market, and the centralized land transfer of hot cities in the third quarter is worthy of attention.

It is expected that the decline of industry profitability will continue, but asset operation and deep ploughing may make some low capital cost companies find the turning point of profitability. Under the background of strict price limit, the recovery of profitability of development enterprises is far away. From the perspective of structure, some enterprises have obvious advantages in capital cost. Under the background of competitive self-sustaining and competitive complex development, if their asset operation ability is strong, they may break through business. In addition, the method of deep ploughing in small-scale areas under the country garden may lead to higher market share and stable profit margin.

Due to the centralized land supply policy, the total number of land supply in 2021q1 of 22 cities decreased by 15.8% compared with that in 2019. The land acquisition and construction area of the top 50 real estate enterprises in March decreased by 35% compared with that in 2019. Short term real estate enterprises have replenishment power. The higher growth rate of sales end in the first four months also provided financial support for real estate enterprises to acquire land; At the same time, if the turnover of the first batch of land is fast, it may enter the market within the year and contribute to the sales performance of the whole year. The above factors lead to the high popularity of the first batch of urban land auction.

CITIC Securities judged that the second and third batch of centralized land supply may be cooling down. Firstly, with the tightening of financing end, the real estate market will be cooled down with policy increase, and the influence of capital side will be gradually transferred to the investment side; Secondly, the second and third batches of land can not be sold within the year; At the same time, considering that the heat of the first batch of land supply cities is relatively high, it is not ruled out that the follow-up local governments will continue to improve the land auction policy to cool the city.

?