Home Business Wang He: Has the turning point of China’s real estate come? | Real estate bubble | Evergrande defaults | Real estate companies are struggling to survive

Wang He: Has the turning point of China’s real estate come? | Real estate bubble | Evergrande defaults | Real estate companies are struggling to survive

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[Epoch Times, October 21, 2021]On October 20, Liu He, Vice Premier of the Communist Party of China, said in a written speech to the “2021 Financial Street Forum Annual Meeting” that there are individual problems in the real estate market, but the risks are generally controllable. Reasonable funding needs are being met, and the overall situation of the healthy development of the real estate market will not change.

This is the CCP’s official rhetoric, which has always been “fake, big and empty”, but the actual situation is just the opposite.

First of all, in the third quarter of this year, the real estate added value grew negative year-on-year, which became a negative factor for GDP growth.

According to data from the National Bureau of Statistics, the real estate industry in the first half of this year was about 3.974.2 billion yuan, an increase of 13.6% over the same period last year, and the growth rate was higher than the overall GDP (12.7%), indicating that real estate is still the main contributor to economic growth. one. But the third quarter ushered in a major turning point, with only 1,877.5 billion yuan, an increase of -1.6% over the same period last year; therefore, the real estate growth rate in the first quarter to third quarter was pulled down to 8.2%, which was lower than the overall GDP level (9.8%).

The problem is not limited to this. The added value of the real estate industry was 414.1 billion yuan in 2000, accounting for 4.1% of GDP that year; 20 years later, it jumped to 7,455.3 billion yuan in 2020, accounting for 7.3% of GDP. In the first three quarters of 2021, it was 5,851.7 billion yuan, accounting for only 7.1% of GDP, a decline of 0.2 percentage points, ending the 20-year history of rising real estate proportions in GDP in one fell swoop.

Of course, the impact of real estate on China’s economy far exceeds its GDP share. In 2003, the CCP defined real estate as a pillar industry of the Chinese economy. The real estate industry affects dozens of upstream and downstream industries. Studies have shown that the contribution of the real estate industry to GDP growth reached 35% in 2016. Currently, what is the direct impact of real estate on China’s economy? Wang Tao, head of economic research at UBS Asia and chief China economist, estimates that the real estate industry has driven China’s GDP growth by about 25% (including multiple rounds of transmission) through direct and indirect channels. The direct and indirect drag on GDP growth can total about 2.5 percentage points.

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The real estate market has been evolving deeply since 2016. After entering 2020, the authorities will continue to implement strong control policies, such as the “three red lines”-that is, the debt-to-asset ratio after excluding advance receipts must not be greater than 70%; the net debt ratio must not be greater than 100%; the cash short-term debt ratio must not be less than 1 time ——Required: Starting from January 1, 2021, real estate companies will officially enter the test period for reducing leverage. By the end of June 2023, the “three red lines” indicators of the 12 pilot real estate companies must all meet the standards; at the end of 2023, all housing companies Enterprise meets standards.

This greatly aggravated the pressure on real estate companies to survive, and the landmark event was Evergrande’s default. Evergrande’s thunderstorm is not an individual incident, but a trend-more and more real estate companies are disappearing (there are statistics showing that one bank closes one day), even a leading company like Evergrande may have an accident (Industry Securities) According to the statistics of 70 real estate companies in the 2020 mid-term report, the proportion of red-end real estate companies that stepped on the “three red lines” accounted for 24%, including Evergrande, Sunac China, Greenland Holdings and Sunshine City and other large real estate companies. Listed among them).

An important factor in the difficult survival of real estate companies is financing difficulties. Let’s look at a few data. First, according to the stock prices of various real estate companies as of the closing date of June 17 this year and related data, in the A-share market, the Shenwan Real Estate Index fell by nearly 10.85% in 2020 (in contrast, the Shanghai and Shenzhen 300 Index has risen by 27.21 for the whole year. %), this year fell by nearly 4%; among the 17 A-share listed real estate companies, 14 of them fell below their net assets per share. Among them, there are even large-cap blue chip stocks. The average rolling price-earnings ratio of the A-share real estate industry is about 7.47 times, which is about 336% lower than the average price-earnings ratio of the Shanghai and Shenzhen markets!

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Second, according to the statistics of the Zhixin Investment Research Institute, the scale of new development loans for four consecutive quarters since September 2020 is 330 billion yuan, the lowest level since 2015. In addition, data from the central bank showed that as of the end of June 2021, the balance of personal housing loans was 36.58 trillion yuan, a year-on-year increase of 13%, the lowest level in the past five years.

Third, according to the statistics of the Zhixin Investment Research Institute, as of the end of September 2021, real estate enterprises issued 529 billion yuan of credit bonds in the Mainland during the year, a year-on-year decrease of 4.8%, and the growth rate was further slower than in August. Among them, 36.2 billion was issued in August. Yuan, a year-on-year decrease of 26.9%, 37.6% lower than the average level of the past five years. Since 2021, equity financing in the form of IPO, fixed increase or exchangeable bonds has basically disappeared, and only 150 million yuan will be issued during the year.

From this point of view, are there individual problems in the real estate market?

How absurd is China’s real estate bubble? Shao Yu, chief economist of Orient Securities, said in a speech at the Boao Real Estate Forum in 2019 that the total market value of China’s real estate is 65 trillion US dollars, equivalent to the sum of the United States + EU + Japan, and equivalent to 5 times China’s 2018 GDP.

It is generally believed that the real estate bubble in China has surpassed Japan in the 1980s, Hong Kong in the 1990s and the United States in 2008.

On September 27 this year, the Nikkei Chinese website published an analysis article saying that the ratio of China’s private debt balance to GDP reached 220%, which exceeded Japan’s peak of 218% after the bubble burst. From the perspective of the proportion of real estate loans in the overall loan balance, China is currently close to 30%, which is also higher than the bubble period of approximately 21% to 22% in Japan. From the perspective of the ratio of housing prices to per capita annual income, in 1990 (the bubble period in Japan) Tokyo was 18 times, and according to the statistics of the Financial Research Institute, Shenzhen was about 57 times, Beijing was about 55 times, Shanghai was 46 times, and Guangzhou was about 55 times. 40 times, showing that ordinary people can no longer afford housing prices in China’s big cities.

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Previously, the “Wall Street Journal” published an article on July 20, 2020, with the title “China is facing an epic property bubble problem: a scale of 52 trillion US dollars.” The article pointed out that at the peak of the real estate boom in the United States, approximately US$900 billion was invested in residential real estate each year. In the 12 months ending in June 2020, approximately US$1.4 trillion has been invested in the Chinese property market; according to Goldman Sachs data, the total inventory of Chinese residential and developers reached US$52 trillion in 2019, which is twice the size of the US residential market. , Even surpassed the entire US bond market. In the United States, real estate accounts for 35% of household wealth, and more people invest in stocks and retirement funds, while nearly 78% of the current wealth of Chinese urban residents is tied to residential real estate. As a result, Chinese residents’ debts have soared. According to data from the Bank for International Settlements, China accounted for about 57% of the $11.6 trillion increase in household loans in the 10 years ending in 2019, and the United States accounted for about 19%.

Obviously, China’s real estate bubble has reached an unprecedented level and is unsustainable.

Concluding remarks

The evolution of China’s real estate industry is also a part of the CCP’s “gradual reform”. It has been unhealthy from the beginning. How can we talk about “the overall situation of the healthy development of the real estate market will not change”? This fully exposed the evil nature and fatal flaws of the CCP’s “reform”. The unprecedented real estate bubble and the difficult survival of real estate companies indicate the overall crisis in the real estate market. The Chinese economy has encountered major problems and the overall risk is uncontrollable. The outbreak of the crisis is probably only a matter of time. The CCP blindly concealed, misinterpreted, denied, moved blindly, and struggled, only to make the crisis more violent.

The Epoch Times

Editor in charge: Gao Yi#

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