After a flurry of supportive policies were introduced and implemented, the real estate industry data has shown signs of improvement since May. However, the market is still in the process of adjusting and transforming.

The real estate market since 2024 has been under the spotlight. There is the reality of listed companies forecasting losses and declining performance in the first half of the year, as well as the glimmer of hope for a market rebound following the introduction of various supportive policies.

In terms of performance, the results expected from listed real estate companies for the first half of the year are not expected to be impressive. Wind data shows that as of July 17, 2024, among the 94 A-share real estate development companies (excluding B-shares, the same below), 67 companies have released their performance forecasts for the first half of the year, with more than 60% of companies expecting losses.

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A person from a listed real estate development company told Caijing that it generally takes about two years for presale housing to be reflected in the performance of listed real estate companies, and this time is also more than half a year for nearly completed presale housing. Therefore, the net profit data of real estate companies listed in the first half of 2024 mostly reflects the sales situation of 2023 or even 2022, so the financial data of companies in the industry is not very good-looking in the first half of the year.

On the policy front, favorable policies have been continuously introduced since 2024. Since the central political bureau meeting in April and the "517 new policy," various ministries and local governments have successively introduced supportive policies for the real estate industry. With some cities optimizing or lifting restrictions on housing transactions, the central bank further reducing the down payment ratio for home purchases, and the interest rates on home loans, the real estate industry has seen a rebound in June.

Data from the National Bureau of Statistics shows that in the first half of 2024, the national sales area and sales volume of new commercial housing decreased by 19.0% and 25.0% year-on-year, respectively, with the decline narrowing by 1.3 percentage points and 2.9 percentage points compared to January-May; the decline in the area of new housing starts and the funds in place for real estate development enterprises has also narrowed.

"According to the information from the housing and construction and other relevant departments, the online signing area of second-hand housing has also increased year-on-year in recent months, and the transaction area in the first-tier cities in June has increased rapidly month-on-month," said the spokesperson of the National Bureau of Statistics in July when answering reporters' questions about the economic operation in the first half of 2024. Of course, it should also be seen that the current real estate-related indicators are still declining, and the real estate market is still in the process of adjusting and transforming.

As for the future trend of real estate, the market has different views.

The aforementioned real estate company person told Caijing that according to the current data, the policy has taken effect in stages, but the data in early July has slightly declined. Whether this momentum can continue depends on the market performance. At least the confidence given at the policy level is relatively sufficient, and the company is cautiously optimistic about the future market."The adjustment of the real estate market in the current and next year may have entered its final phase," said Xing Ziqiang, Chief Economist of Morgan Stanley China, at the 2024 Mid-Year Investment Strategy Conference. Compared with the real estate trends in other countries, the adjustment of China's real estate volume is basically in place, and there is still some room for price adjustment, but it is not far off. Whether the changes in real estate policies can play a supporting role and shorten the adjustment period is also a variable.

Performance Chill

Losses and declining performance are the common situation faced by real estate development companies that have released their performance forecasts for the first half of 2024.

Wang data shows that among the 74 residential development companies listed on the A-share market, there were 24 companies with operating income of more than 10 billion yuan in 2023. Among the 17 companies that have released their semi-annual performance forecasts as of July 18, as many as 14 companies are expected to have losses, and the other three companies, although expected to be profitable, have seen a net profit decline of more than 70% year-on-year.

As the leader of the residential sector, Vanke A is expected to report a net loss attributable to shareholders of 7 billion to 9 billion yuan in the first half of 2024, a year-on-year decline of 171% to 191%; the net profit after deducting non-recurring gains and losses is expected to be a loss of 5 billion to 6.5 billion yuan, a year-on-year decline of 157% to 175%. In the same period of the previous year, the company made profits of 9.9 billion yuan and 8.7 billion yuan respectively. This is the first time in about 33 years since the company went public that it has reported a loss for the first half of the year.

"Although the company has realized the importance of transformation and development at an early stage, the investment in transformation business has exceeded the boundaries of resources and capabilities. At the same time, the company has not been able to completely get rid of inertia, and some development project investments are too optimistic, with high land costs." Vanke A explained that as these projects enter the settlement in 2024, the company's settlement performance is greatly affected. At the same time, in order to ensure the safety of cash flow, the company has increased the inventory turnover and asset disposal efforts through price discounts, which has further increased the company's performance pressure.

The significant decline in the settlement scale and gross profit margin of real estate development projects, the provision for impairment of some projects, the loss of some non-main business financial investments, and the transaction price of some bulk asset transactions and equity transactions being lower than the book value are the four main reasons for the significant loss of Vanke A's performance in the first half of the year.

Greenland Holdings (600606.SH), which ranks second in operating income in the residential development sector in 2023, is expected to achieve a net profit attributable to the parent company of 200 million to 250 million yuan in the first half of 2024, a year-on-year decline of 90.4% to 92.3%; the net profit attributable to the parent company after deducting non-recurring gains and losses is expected to be 60 million to 110 million yuan, a year-on-year decline of 94.3% to 96.9%.

"In the first half of 2024, the overall downturn in the real estate and infrastructure industries has not been reversed, and the challenges faced by enterprises are still very large." Greenland Holdings said that the decline in the scale of real estate business turnover and infrastructure industry revenue scale year-on-year is the main reason for the significant decline in the company's net profit year-on-year.In the commercial real estate sector, the performance of Overseas Chinese Town A (000069.SZ) and Joy City (000031.SZ) is also not optimistic. Overseas Chinese Town A estimates that the net profit attributable to the mother company for the first half of the year will be a loss of 900 million to 1.25 billion yuan, which is a reduction compared to the loss of 1.3 billion yuan in the same period of the previous year.

Joy City estimates that for the first half of 2024, the net profit attributable to the mother company will drop from a profit of over 50 million yuan in the previous year to a loss of 260 million to 490 million yuan. The company stated that the decline in comprehensive gross margin due to the impact of sales-type settlement resources and cycle changes, the reduction in investment income from associated enterprises compared to the same period last year, and the provision for impairment losses on various assets that may occur are the main reasons for the company's losses.

The performance of industrial real estate companies is also facing difficulties. Huaxia Happiness (600340.SH), which is in the debt restructuring phase, estimates that the net profit attributable to the mother company for the first half of 2024 will be a loss of 4.5 billion to 5 billion yuan, which is an increase in the loss amount compared to the same period of the previous year.

Although Waigaoqiao (600648.SH) estimates that the net profit attributable to the mother company for the same period will be about 141 million yuan, this figure has declined by about 72.92% year-on-year. The company stated in its half-year performance forecast that, according to the company's business plan, the realization of asset transfers and commercial housing sales this year is mainly concentrated in the fourth quarter for confirmation. Therefore, there is no commercial housing sales turnover area, revenue, and gross profit in this period, leading to a reduction in profit generated by the main business compared to the same period of the previous year.

Cheese Fund Investment Manager Hu Kunchao told Caijing that, on the one hand, the land acquisition costs in the previous years were relatively high, and at the same time, the overall environment was not good, leading to a continuous reduction in gross margin due to discounted sales. On the other hand, management expenses are relatively rigid, leading to a passive increase in the expense ratio, coupled with financial expenses, which comprehensively leads to a continuous decline in the net profit margin of many real estate companies, resulting in losses.

Looking at the sequential data, compared to the first quarter, the performance of many real estate companies further declined in the second quarter, and there were also a few companies with improved sequential data.

In 2023, although both operating income and net profit fell year-on-year, the net profit attributable to the shareholders of the listed company of Vanke A still exceeded 12.1 billion yuan. However, entering 2024, the company fell into a loss predicament.

In the first quarter of 2024, the net profit attributable to the shareholders of the listed company of Vanke A and the net profit after deducting non-recurring gains and losses were a loss of 362 million yuan and 1.675 billion yuan, respectively. Based on this calculation, the loss amounts for the aforementioned data in the second quarter of the company were more than 6.6 billion yuan and 3.3 billion yuan, respectively, showing a significant sequential increase in loss amounts.

Similarly, in the first quarter, the net profit attributable to the shareholders of the listed company of Greenland Holdings and the net profit after deducting non-recurring gains and losses were 82 million yuan and 216 million yuan, respectively. Based on this calculation, the company's net profit in the second quarter exceeded 100 million yuan, but the net profit after deducting non-recurring gains and losses was a loss of more than 100 million yuan.

There are also some companies that have seen an improvement in their second-quarter data on a sequential basis.Wai Gao Qiao's net profit attributable to the parent company for the first quarter was 390 million yuan. Based on the company's estimated data for the first half of 2024, the net profit attributable to the parent company for the second quarter is expected to be around 102 million yuan, showing a significant improvement quarter-on-quarter.

Multi-channel financing

In the downcycle of the industry, ample funds are an important weight for real estate companies to survive. Since 2023, many real estate companies have raised funds through various means, including loans, borrowings, and refinancing measures such as targeted equity issues.

Wind data shows that in 2023, four real estate companies raised a total of 29.3 billion yuan through targeted equity issues. Since 2024, five real estate companies have raised a total of 4.6 billion yuan through targeted equity issues and exchangeable bonds.

Since 2023, several real estate companies have announced plans for additional equity issues and exchangeable convertible bond issues, hoping to obtain more cash support through financing.

Wind data shows that from January 1, 2023, to July 18, 2024, a total of 22 companies in the A-share market announced plans for additional equity issues, with an estimated total fundraising amount of about 54.7 billion yuan. Excluding three companies including Gree Real Estate (600185.SH) and Vanke A, which have stopped implementing the project, the estimated total fundraising amount for the aforementioned companies is about 25.1 billion yuan.

If all the additional equity issues mentioned above are completed in 2024, without calculating the refinancing amount for the first half of the year, then the total refinancing amount for real estate companies in 2024 will be slightly higher than that of 2023.

In March 2023, New City Holdings (601155.SH) issued the "2023 Annual Plan for Issuing A Shares to Specific Objects," with the company planning to raise 8 billion yuan. In addition to 2.4 billion yuan for supplementing working capital, the rest of the raised funds are intended for six projects, including the Wenzhou New City Oujiang Bay project.

Subsequently, New City Holdings reduced the aforementioned targeted equity issue fundraising amount to 4.5 billion yuan. In March 2024, New City Holdings extended the validity period of the aforementioned additional equity issue plan by 12 months, i.e., until March 28, 2025.

"The investment of the funds raised this time will effectively alleviate the pressure of capital investment, ensure the delivery cycle and quality of the project, and is of great significance for improving people's livelihood and promoting the harmonious and stable development of society," said New City Holdings. At the same time, the investment of the raised funds will enhance the company's financial security and debt repayment ability.It is worth noting that after the shrinkage of the funds raised through private placements, the company has sought financing through other channels. New City Holdings announced in March 2024 that, upon approval by the board of directors, to meet the company's operational and development needs, the company may apply for a total loan amount of no more than 15 billion yuan (including the equivalent of 6.743 billion yuan of unused and outstanding loan balances as of the end of February 2024) from New City Development and its affiliates within 18 months from the date of approval by the shareholders' meeting. The annual interest rate of the loan is not to exceed 8% (excluding taxes).

China Enterprises (600675.SH), which is expected to report a loss in the first half of 2024, disclosed in its "Revised Draft of the Prospectus for the Issuance of Shares to Specific Objects (Updated with 2023 Financial Data)" released in April 2024, that the company plans to raise 4.5 billion yuan. Except for 1.35 billion yuan to be used for supplementary working capital, the remaining funds will be used for the development of two ordinary commercial housing projects, Zhongqi YuPin · Yinhu Bay and Zhongqi Yuncui Forest.

According to the information, the company's Zhongqi YuPin · Yinhu Bay project, an ordinary commercial housing project, started in February 2023 with a planned delivery time from September 2025. The total investment amount for this project is 10.83 billion yuan, with a planned total number of salable residential units of 2,193, expected sales of 13.81 billion yuan, and an expected net profit of 1.638 billion yuan.

Although Vanke A withdrew its private placement plan with a total fundraising amount not exceeding 15 billion yuan in 2023, the company has raised funds through other channels. The company's management revealed at the investor exchange meeting in July 2024 that the company has received great support from financial institutions, and the financing channels remain unobstructed. "So far this year, the company has added more than 60 billion yuan in new financing and refinancing, corresponding to the repayment of over 50 billion yuan."

Vanke A has made significant progress in transforming its financing model. In terms of project whitelists, the company has actively applied according to the principle of "reporting as much as possible," and most of the under-construction projects have been reported to the local cities. The company has also taken advantage of the opportunity of operating property loans and actively carried out special actions, adding 14.98 billion yuan in the first half of the year.

In terms of syndicated loans, the company obtained a 20 billion yuan syndicated loan led by China Merchants Bank in May, which is also one of the larger single amounts of loans in the real estate sector in recent years, and the financing package of fixed assets from the Bank of Communications was implemented in June.

The management of Vanke A revealed that the company will continue to strive for opportunities for syndicated loans in the future to consolidate the company's cash flow.

"At present, the financial pressure on real estate companies is still relatively large," Hu Kunchao said to Caijing, indicating that policy support on the financing side can only alleviate short-term cash flow pressure. The best solution is the recovery of commercial housing sales, and the enhancement of the company's self-blood-making ability, in order to form a healthy and stable cash flow.

Has the turning point arrived?

After entering 2024, real estate support policies have been introduced intensively.Since the Central Political Bureau meeting on April 30th, the central government has held consecutive meetings and made important directives regarding the real estate market. On the demand side, the policy measures have been significant, with many cities lifting purchase restrictions, removing the lower limit on mortgage loan interest rates, and also reducing the down payment for first and second home loans.

On the supply side, the national video conference on ensuring the delivery of houses held on May 17th proposed to solidly advance the absorption of existing commercial housing and properly handle the idle residential land that has been allocated.

The State Council's executive meeting on June 7th pointed out that it is necessary to continue researching and reserving new policies and measures for inventory reduction and market stabilization.

After the intensive introduction and implementation of these policies, there are already positive signs in the market.

The management of Vanke A stated that the current round of policies has been targeted and effective. "Since April, Vanke's own sales volume has been increasing month by month. Currently, there are signs of stabilization in transactions in several core cities such as Shanghai, Shenzhen, Hangzhou, and Guangzhou, especially for some improvement-type projects, which have seen good sales, which is a very positive signal." The company's senior executives said.

In June, the total sales amount of the top 100 real estate companies increased by 32.5% month-on-month, but decreased by 21.8% year-on-year, with the decline narrowing by 13.6 percentage points.

According to statistics from "Caijing," from January to June 2024, Vanke A's monthly contract sales amount saw a year-on-year decline of more than 50% in May, but the decline gradually decreased. In June, the company's contract sales amount decreased by 30% year-on-year, lower than the data from January to April, and slightly higher than the data from May.

Data from other companies also shows that the real estate market has improved.

From January to June 2024, Poly Development (600048.SH) achieved a year-on-year decline of more than 30% in signed area and a 26.81% year-on-year reduction in signed amount. It is worth noting that in June, the company's signed area decreased by 11.31% year-on-year, but the signed amount increased by 4.62% year-on-year. The company's monthly year-on-year decline in signed amount has been narrowing for four consecutive months since March and turned positive for the first time in June.

"Since the Central Political Bureau meeting on April 30th, 2024, and the '517 new policy,' various ministries and local governments have introduced support policies for the real estate industry, and the market has seen a certain increase in enthusiasm." Poly Development stated that the company's national projects maintained an average weekly total of around 50,000 visits from May to June, which is a 32% increase compared to April before the new policy was introduced, and has returned to a relatively high level comparable to March-April 2023.Shou Kai Co., Ltd. (600376.SH) announced that in June, the company achieved a sequential increase of over 90% in the signed area and a sequential increase of over 70% in the signed amount.

I Love My Family (000560.SZ), whose main business is real estate agency, estimates that the net profit loss after deducting non-recurring gains or losses in the first half of 2024 will be capped at 490 million yuan, an improvement compared to the loss of 580 million yuan in the same period of the previous year.

In its performance forecast, I Love My Family stated that since the second quarter, the relaxation of domestic real estate market policies has continued to intensify. Especially since May, as some cities further optimized or lifted restrictions on housing transactions, and the central bank successively implemented policies such as further reducing the down payment ratio and housing loan interest rates, the transaction volume of second-hand houses in the core cities where the company operates (such as Beijing, Shanghai, Hangzhou, etc.) has shown a good recovery trend. "From May to June, the transaction volume and viewing volume of the company's second-hand housing sales business have both achieved good year-on-year growth, making a positive contribution to the company's performance."

A staff member of Lianjia in Tongzhou District, Beijing, told Caijing that compared to before, the transaction price of second-hand houses in Tongzhou has stabilized since May, and the transaction volume has increased significantly.

Regarding the future market, institutions and companies have different views.

In the view of the management of Vanke A, looking at the stage of urban development in our country and the people's pursuit of a better life, it is impossible to maintain the status quo for a long time. As long as the industry survives, there will definitely be opportunities. "Especially for companies that can provide high-quality housing and meet the demand for improvement, their advantages will be more obvious."

"The policy is expected to continue to take effect in the second half of the year, and will further optimize and implement to support the stability and recovery of the market," Pan Jun, an investment manager at Cheese Fund, told Caijing. The real estate industry has shown some signs of recovery under the promotion of policy support and market adjustment, but the full recovery of the market still requires time and more policy support.

The China Merchants S&P 300 Real Estate Equal Weight Index Fund pointed out in its second quarter report of 2024 that considering the frequent introduction of real estate policies, but the actual improvement in sales has not been reflected, the future sensitivity to real estate policies may be dulled, and the real factors that can drive real estate will increasingly focus on the changes in the profit and loss statement and the degree of debt burden reduction. "Looking forward to the next quarter, we still maintain a cautious attitude towards the profit improvement of the real estate sector."

The Guotai Real Estate Industry Index Fund also pointed out that in the second quarter, real estate policies were introduced frequently, but judging from the inertia of the real estate cycle itself, the downward pressure on real estate investment will continue to increase.