2014-11-11

CICC Predicts Home Price Recovery After 2015Q2

CICC predicts prices will recover after Q2 in 2015 and prices will rise less than 5% for the year. The forecast is based in part on falling inventories, rising consumer deposits and falling real interest rates.

Recent famous investment bank CICC released depth report on China's real estate trend in 2015 for a detailed forecast. Depth report on the gold combs, summarizes 20 major industry trend forecasting conclusions in this share and performance colleagues.

Future supply side also tends to shrink: With the 2014 developers conservative investment activities, new construction contraction, we predict 2015 supply fell by 5% to 10% compared with 2014 (compared to 2012, compared with 2011 the supply of key cities flat).

Industry inventory to show signs of improvement at the end of the cycle: As of the end of September, we monitor the number of months of inventory to index from 16.9 months in July highs slightly reduced to 16 months, while the period from 2011 to 2012, stocks go of the number of months highs in January 2012, was 17.9 months, and then rapidly decreased to 9.0 months in August 2012.

Cost of capital, the expected real interest rates fell steadily in 2015, down speed slow in 2012: According to the CICC macro group predicted that by 2015 there will be twice the annual interest rate cuts, while the CPI growth rate will fall to 1.4% of the low (2014 Forecast: 2.0%), meaning that real interest rates in 2015 will show a slight downward trend of steady, slow down speed in 2012, while real interest rates and rates negatively correlated, indicating that 2015 rates steady.

In 2013, the Chinese real estate market (thematic reading) progressively upgraded by improving housing era to the era of shortages, the iconic event is the average one suite implementation. We believe that the future potential demand for housing will decline year by year, the market focus to "improve" + "guarantee" regulatory policy from 2010 to 2013 will also be suppressed demand into encourage housing consumption, to prevent the real estate market risks.

Land System: to encourage urban renewal, and control large city new construction sites; or will have modified / Urban Renewal and institutional framework introduced.

2015 is a "small year" real estate investment, investment growth is expected to slow down to 8%, new construction area fell 10 percent.

Historically, real estate investment growth is a lagging indicator of the source of funds available and industry sales, the rapid decline in 2014 industry will continue to drag on capital in place of real estate investment growth; current industry salable inventory is still high, get to no significant improvement, new construction is expected in 2015 will continue to shrink, from the industrial logic chain perspective, the industry growth rate of investment recovery up to wait for the systematic decline in inventories can be sold, to get to the recovery point or in the second quarter of 2015 and beyond.

Mortgage loans will be improved, expected sales rose about 5 percent, year on year growth rate of 3% of sales area. Index of leading indicators of industry sales are credit growth, macro team gold in M2 growth is still expected in 2015 will maintain 13% growth year on year, new credit amounted to 9.5 trillion yuan, according to past experience, the new credit of 15 % ~ 20% will be used for mortgage loans, coupled with the release of the mortgage loan maturity mortgage amount, we estimated annual new issuance of mortgage loans will be around 3.4 trillion, an increase of 14%, will support residential sales rose 5 percent to 6.91 trillion.

Major focus of city data show that in 2015 the gap between supply and demand will be narrowed, the city is expected to supply fell 7 percent, demand to pick up 9% year on year.

Small cities are facing high base, pick up the magnitude of the weak: And see small and medium sized cities, such as we observe the 2.5-tier cities and tier cities (cities of gold in 2.5 is defined as, in addition to 40 second-tier cities, the real estate market the development of a good 46 prefecture-level cities), in recent years gradually into the stationary phase of market development (similar to second-tier cities from 2009 to 2014), is limited to the high base, we expect that in 2015 the city commercial housing sales rose year on year respectively, 4 % and -2%, significantly weaker than the overall level of a second-tier city of more than 8%.

Home price are expected after the second quarter of 2015 to pick up, the chain adjustment is less than 5%, is relatively stable throughout the year as a whole: the past decade's history tells us that home prices and real interest rates have a negative correlation, between velocity and resident deposits on a regular basis (performance growth rate for demand deposits and time deposits poor) is leading indicator, the relationship between house prices have, we expect house prices to pick up after Q2 2015, prices are expected to move within a range of 5%.

The stock of housing more than one set per household, estimated vacancy rate of 17.7 percent, the future needs to "live update" + "Old City." Our estimates, the town has a total stock of housing families 260 million units, 620 million, for a total 20.9 billion square meters.

International experience, unless strictly controlled the supply of land, real estate and unsustainable high profit margins: We compared the experience of other countries to develop Developer / region found that due to real estate developers do not form the core of the industry entry barriers, in addition to strict land supply is controlled urban economies (eg Hong Kong), the gross margin developers to business fluctuations were about 20%, while the net profit rate of 10% or less.

Enter the real estate "Silver" era, sales volume peaked, profit margins down, after the competition, developers only transition, there is a layout of the redistricting, industrial development, mode switching three paths: Overview of countries / regions developer development process, we can The transformation of the way developers attributed to "Layout" and "industrial" and "mode" in three dimensions, look to the next three to five years, we expect an increase in the size of the space industry peaked case, the developer will usher in the transformation opportunities .

Developers should focus on the future layout of the "core, core or core" of the top 20% of a second-tier cities: Based on our detailed data mining results, 40 second-tier cities, we are less optimistic about the real estate market, only the saturation, the future still has potential the top 20% of a second-tier cities, such as Beijing, Shanghai, Guangzhou, Shenzhen, Nanjing, Xiamen and other cities.

From the industry perspective, we believe that the future of mainstream big developers will be more inclined to vertical integration, while small and medium sized companies to achieve cross-cutting diversification. Overview of various national development experience, economies of developers, we found that in the larger population base or a vast country / economy, mainstream developers tend to achieve vertical integration (such as the United States since 1980 developing mortgage company Japanese developer involvement in the construction industry, increase the proportion of the property holdings), stick to the residential development industry chain; and urban economies, island economies, or small and medium sized companies are "small boat U-turn", easier to implement cross-cutting diversification (such as Hong Kong, China Taiwan region developers, both in space after the industry growth peaked, other industries involved in development of the city / region, such as public transport, department stores, electronics industry, etc.).

The main means of achieving vertical integration or cross-sectoral diversification or acquisitions in the next three to five years is the development of the industrial era of big mergers and acquisitions. Meanwhile, we also see that such economies 美国, China Taiwan etc., to achieve vertical integration, cross diversified primary path is through mergers and acquisitions, rather than self-cultivation, therefore, room for growth in the industry peaked case, we believes that the next three to five years, China will have more real estate industry in the merger case (similar to the US between 1990 and 2002), and small and medium companies cross diversified Case (similar China Taiwan region 1992 ~ 2002) released.

Developer of the core elements of the traditional model is the "ability to obtain high-quality land" + "capital utilization efficiency": From the perspective of the value chain, from developers to the core values ​​of the acquired land value portion, behind the core elements that support the ability to obtain high-quality land and the use of capital efficiency. Well, from the direction of thinking up mode transformation, we must land acquisition, the funds use two fuss.

Traditional powers economies, landholding developers are in the domestic market, and therefore need to reduce leverage on the industry down cycle mode, the asset-light: in a large country economies, developers or industrial development road assets held for Lord, pay more attention to elements of the value chain of land acquisition, land development services for financial leverage, it is difficult to achieve systematic internationalization, so the business layout from the developer in Japan, the United States and other countries, the type of assets held by weight of a lot of land developers, For example Paldi, Mitsui real estate, with its overseas operations accounted for all layout operations are less than 10% the proportion. And when these developers are facing the industry down cycle, the most popular choices to achieve cost leverage, asset-light to deal with fluctuations in the industry.

Internationalization requires a high degree of financialization, add leverage to achieve inter-regional, high return "small is beautiful": Another extreme model is highly financialization, this in commercial real estate, capital market dual-developed economies of the more prominent often appears in the industrial development cycle back end (the amount of residential construction or substantial shrinking economies in the city), and a highly developed financial sector after its prominent model is the rapid development of the real estate fund holders achieve financial investment from industry, international inter-regional distribution, typical cases are Singapore's CapitaLand disposal, the United States, Tishman Speyer, and so on.

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