Behind The General Rise Of Real Estate Stocks: Rebound Or Rebound?

Property stocks seem to be "dead wood spring". Down more than half a year, the real estate sector recently rebound signs, from last week, a shares and H shares of real estate stocks began to rise collectively.

By the end of August 16, 2021, a shares, Gree real estate, Suning global trading limit; Vanke a closed at 22.96 yuan / share, up 0.75% slightly; Poly Real Estate closed at 11.84 yuan / share, up 4.87%; Jindi closed at 10.80 yuan / share, up 3.85%. In terms of Hong Kong stocks, blue chip China overseas development was at HK $18.84, up 0.86%; China Resources Land closed at HK $29.65 per share, up 1.72%; Country garden, a leading real estate company, closed at HK $8.59, up 0.70%.

The real estate sector has indeed ushered in the long lost good news. According to the 21st century economic report, the Ministry of natural resources has recently made new arrangements for some centralized land supply cities in order to better stabilize land prices while increasing supply. The Ministry of natural resources has put forward four main requirements, including "the premium rate of single land shall not exceed 15%," after reaching the upper limit, the actual land price shall not be increased by means of competing for construction ".

The industry generally believes that the optimization of centralized land supply policy means that the profit level of real estate enterprises will be increased to a certain extent, which has positive significance for the future development of the industry. However, it needs to be reminded that many real estate enterprises are still in trouble in the real estate industry, and the overall prosperity of the industry still needs to be improved. In this context, investment in real estate stocks, still need to be cautious.

Universal logic

This year's real estate stocks "fall endlessly", which happened under the background that the overall development of the real estate industry is strictly controlled. Under the constraints of "three red lines", "housing loans" and even "two centralized" land supply, the profit level of the real estate industry has dropped to a low level.

According to the data of Guoxin Securities, the total operating income of the real estate sector in 2020 will be 2.75 trillion yuan, with a year-on-year growth rate of 11.2%, which is 9% lower than that in 2019; However, in 2020, the total net profit attributable to the parent company was 190 billion yuan, with a year-on-year growth rate of - 13.5%, which was 22% lower than that in 2019. It was also the first time that the real estate industry ushered in a negative growth of net profit after the year-on-year growth rate of the real estate industry declined in the past five years.

After the first round of "centralized land supply", Qi Jinxing, chairman of Binjiang group with relatively good operation and management ability, once told investors that the company has recently obtained 5 pieces of land in Hangzhou's centralized land transfer. Under the efficient management of Binjiang team, the company's financing capacity has been improved and other factors, the company is striving to achieve a net profit level of 1% - 2%.

This means that no real estate company is immune to the decline in profit level. It is also because the development logic of the real estate industry has changed, so the expectations of real estate stocks are not optimistic, and it is inevitable that the stock prices will suffer successively.

Therefore, the recent "centralized land supply" policy patching, so that the profitability of the real estate industry slightly rebounded, is one of the reasons for the rise of the plate share price. Chen Cong and Zhang Guoguo, analysts of CITIC Securities, pointed out that with the implementation of stable land price and stable house price, the worries of zero profitability of development enterprises have been resolved“ In the past, the situation that land prices kept rising and house prices could not rise really made the market worried that the profitability of enterprises would decline without a bottom. We believe that the profitability of the industry will not return to zero, and the supply of commercial housing will continue for a long time. "

Ping An Securities also believes that although there is still downward pressure on the gross margin at the settlement end of the industry, the current sector valuation has reflected concerns about performance and gross margin. With the promotion of relevant systems, the gross margin of land acquisition is expected to stabilize.

While the fundamentals ushered in good news, the trend of leading enterprises is also seen as a rebound signal of the real estate sector. On August 5, 2021, Poly Real Estate announced that Poly Group, the major shareholder of the company, had increased its holdings of 500000 shares in the secondary market on August 4, and the increase in holdings will not exceed 2% in the next year.

Not only big shareholders, Poly Real Estate executives also plan to increase holdings. The announcement of Poly Real Estate pointed out that Liu Ping, chairman and general manager of the company, plans to increase the total holding amount by no less than 8 million yuan and no more than 15 million yuan within 6 months from August 4, 2021, and the increase price will not exceed 15.06 yuan / share. After the announcement of the increase, Poly Real estate stock price hit the bottom and rebounded, which also led to the rise of the real estate sector, which was regarded as an opportunity for valuation repair.

Guard against traps

Whether the investment logic of real estate stocks has changed should be analyzed from the fundamental changes of the real estate industry.

In fact, although the patching of "centralized land supply" has indeed improved the pessimistic expectations of the industry, the tone of the most important "stable land price, stable house price and stable expectation" has not changed, and the power of the "three red lines" and the new housing loan regulations still exist.

From the recent market performance, the industry development is relatively stable. According to the data released by the National Bureau of statistics on August 16, the sales price increase of commercial residential buildings in 70 large and medium-sized cities continued to decline in July. From January to July, the average sales area of commercial housing increased by 7% in two years, 1.1 percentage points lower than that in the first half of the year; Investment in real estate development has increased by 8% on average in the past two years, falling by 0.2%.

A spokesman for the National Bureau of statistics also said that in the next stage, all regions and departments adhere to the principle of "housing without speculation", continue to stabilize land prices, house prices and expectations, and continue to improve the housing system of "multi-body supply, multi-channel security, and simultaneous purchase and rent", so that the real estate market is expected to maintain stable development.

So, although the real estate stocks in the current ushered in "valuation repair", but this can be seen as an oversold rebound. From the perspective of funds, real estate stocks are still relatively difficult to obtain the favor of large funds. According to the statistics of Southwest Securities, the proportion of active partial equity funds in real estate industry decreased for six consecutive quarters. In the second quarter of 2021, the proportion of real estate positions was only 0.9%, which continued to decline month on month, and was already at the lowest level in history.

More importantly, in the medium and long term, real estate stocks are still constrained by the "three red lines", the new regulations on housing loans and "centralized land supply". In the future, only enterprises with strong financing ability and high management level can have the ability to cross the cycle, while the real estate enterprises with high leverage and high debt will still face development difficulties.

At present, Huaxia Xingfu, Blu ray and other real estate enterprises that have defaulted on their debts have not yet been resolved, and some leading real estate enterprises are still on the verge of default. Such a situation also warns investors that the real estate industry is not only about scale, but also about the ability of financial control.

BOC securities also believes that with the implementation of policies such as "three red lines", centralized management of housing loans and "two centralization" of local auction, the industry has gradually implemented transparent management from the financing side to the investment side, and the overall development will become more benign after adjustment and turn to "management and operation driven". In this context, the strong comprehensive strength of the head real estate enterprises will have more advantages.

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