More Than 10% Drop In Property Stocks: Where Is The Future Of The Collective Slump?

Driven by the market and under the influence of news, property stocks fell sharply on July 26.

On July 26, 2021, property stocks of Hong Kong shares fell sharply in the opening session, with a number of property stocks falling by more than 10%, and the decline continued to the end of the day. As of the end of the day, Shimao services fell by 19.55%, rongchuang services by 13.87%, country garden services by 16.60%, times neighborhood by 11.11%, Xuhui Yongsheng services by 17.47%, ocean services by 11.50%, Jinke services by 18.15%, China Resources Vientiane life by 14.07%, and China Ocean property by 14.44%. Among the few companies whose stock prices rose, Sinorgchem rose 1.45% to close at HK $0.670.

On the news, on July 23, the Ministry of housing and urban rural development and other eight departments jointly issued a notice on continuous rectification and regulation of the real estate market order. According to the circular, we should strive to focus on the four aspects of real estate development, housing sales, housing leasing and property services in about three years. The standardization of property services is considered by market participants to be one of the reasons for today's property stock slump.

In fact, property stocks have been favored by the capital market since last year. In the "summary of the first half of 2021 and outlook for the second half of 2021" released by China Index Research Institute on July 6, 2021, it is also said that "property service enterprises in the first half of 2021 usher in unprecedented development opportunities." In this context, can property stocks maintain upward trend?

Property market to be renovated

From the basic point of view, the performance of property stocks in the first half of this year is still outstanding, and most of them are in the period of performance improvement. In recent days, many property companies have issued positive earnings forecasts.

Time neighborhood released a positive profit forecast on July 23, saying that time neighborhood expected that the profits of the group's equity owners that had not been audited for the six months ending June 30, 2021, would record a significant year-on-year increase of more than 80%.

On the evening of July 22, Hejing Youhuo released a positive profit forecast. The announcement predicts that the first half of the year's unaudited profit will be no less than 150% higher than that of about 124.5 million yuan in the same period of 2020.

But the soaring performance did not let the property sector as a whole strong. On July 26, property stocks fell sharply all the way after the opening of trading, and no matter leading enterprises or small and medium-sized enterprises were spared.

Baiwenxi, IPG's chief economist in China and vice president of China enterprise capital alliance, told 21st century economic report that the property sector's sharp fall on July 26 was negatively affected by the news on the 23rd. Therefore, under the circumstance that many property stocks had good performance for half a year, the property sector still experienced a big drop.

On July 23, the Ministry of housing and urban rural development and other eight departments jointly issued a notice on continuous regulation and regulation of the real estate market order. According to the circular, we should strive to focus on the four aspects of real estate development, housing sales, housing leasing and property services in about three years.

Among them, the focus of rectification on property includes: not providing services according to the content and standard of property service contract; Failing to publicize the relevant information such as the standard of property service charge items, the operation and income of the common part of the owners, and the use of maintenance funds, etc; Charging fees beyond the standard of charging items stipulated in the contract or publicized; Unauthorized use of the common part of the owners to carry out business activities, embezzle and misappropriate the operating income shared by the owners; After the property service contract is terminated or terminated according to law, it refuses to withdraw from the property service project without reasonable reasons.

According to Bai Wenxi's analysis, this seems to be the improvement of the property sector's standardized governance and industry supervision, but in fact, to a certain extent, it represents the regulatory signal that the regulatory authorities should start from the property management sector to intensify the governance of real estate enterprises and reduce the non-standard operation space of real estate enterprises. What is the future of property stocks?

In recent years, with the discovery of the value of property services in the capital market, the enthusiasm of real estate enterprises to split up the property sector for listing is unprecedented.

Since 2021, the listing tide of property enterprises is still continuing. This year, 12 property companies have been listed successfully, while there are still 15 property companies queuing up for listing.

In terms of the overall performance of the stock price, according to the statistics of the China stock index Institute, in the first half of 2021, the property management industry rose by 30.40% in the first half of 2021 based on the high certainty and predictability of performance growth, continuing the strong performance in 2019 and 2020.

Differentiation of individual stocks intensified

However, the future property stocks, the possibility of overall strength has gradually weakened. Morgan Stanley pointed out in a newly released research paper that it lowered its view on the mainland property management stock industry from the original "attraction" to "in line with expectations"“ Market sentiment continued to be affected by the lack of short-term catalysts and the outlook for deleveraging and liquidity in the housing sector. The bank estimates that the net profit of mainland property management stocks increased by 60% on average in the first half of this year, but believes that relevant factors have been reflected in the share price. "

From the current trend of property stocks, differentiation will become the main theme in the future. With the increase of the supply of shares, large cap stocks and characteristic stocks showed a strong trend, while small cap stocks continued to weaken. From the beginning of the year to now, among the 33 listed property companies in Hong Kong stock market, the share price has increased by more than 120% with the biggest decline of more than 31%. The market's expectation and valuation of property stocks are becoming rational.

In fact, this is the inevitable result of property stocks after integration and competition. The property industry used to be a low concentration industry. With the acceleration of large-scale acquisition and merger in recent two years, its Matthew effect is intensifying, and the trend of "the strong will always be strong" will continue in the future.

According to Bai Wenxi, property stocks belong to asset light mode, relatively speaking, they have good cash flow, high roe, strong anti cyclical and growth imagination supported by value-added services, so they are more concerned when the capital market is generally short of themes. Of course, at present, there is a phenomenon of individual stock differentiation in the plate, and investment will pay more attention to the quality and performance of individual stocks.

The research report issued by CITIC Securities also pointed out that the policy direction of property management marketization and large-scale development is clear, and the property management industry will realize the essence of "manager" and accelerate the survival of the fittest. From the perspective of large-scale real estate, property management is the only sub industry with broad space and highly supported by policies on large-scale and market-oriented Road, so it is optimistic about the development opportunities of property management industry.

CITIC Securities continued that for small and medium-sized enterprises with a contract area of less than 100 million square meters and a revenue scale of less than 1 billion yuan, they will not be able to take any advantage in technology systems, value-added services and other aspects in the wave of economies of scale unless they find an accurate positioning of the subdivision track“ For these enterprises, the valuation of listing today will be close to that of leading property management enterprises merging non listed companies (e.g. 12-15 times PE), and there is no room for the merger consideration based on property management rights to rise. "

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