Real Estate Bull Market and Real Estate Cycle
The real estate market formed a long-term bull market in 2015-2017, which has greatly exceeded the two bull market cycles of 2009-2011 and 2013-2014. Judging from the data, this wave of bull market has basically ended in 2018, and the real estate market as a whole has returned to a downward trend.
Figure 1 The real estate super cycle has ended
The real estate bull market in the picture above is a segmental wave trend in the real estate cycle. From a long-term perspective, it is still mainly to observe the real estate cycle. The real estate and construction industry cycle is closely related to the "baby boom". China's real estate started late, and there is not enough data to support the judgment of China's real estate cycle. Some people believe that the housing monetization reform was carried out in 1998 and peaked around 2015 Falling back, China has ended the upward period of the first Kuznets cycle, and we are currently in the downward phase of this Kuznets cycle.
Real estate reform cattle and real estate inventory
The real estate bull market since 2016 reflects the task of “destocking” in domestic supply-side structural reforms. The loosening of real estate policy has largely stimulated the demand for residents to buy real estate. Different from the past, this round of real estate bull market took the lead in super-first-tier cities, but the bull markets in super-first-tier cities soon died down under the guidance of policies. After three years of destocking, the goal of supply-side structural reform has been successfully completed, and the high inventory brought by the last round of the real estate bear market has been basically digested.
By September 2019, the area of domestic real estate for sale was 494.46 million square meters, which is close to the level of 2013. After rising housing prices in recent years, the goal of destocking in the domestic real estate market has been basically achieved.
Figure 2 Changes in the area of real estate for sale in recent years
Rising house prices bring rise in residents' leverage
Among the tasks of supply-side structural reform, in addition to destocking, there is also deleveraging, but it is clear that deleveraging here refers to deleveraging to banks, not resident units. Through the adjustment of financial policies and destocking in the real estate sector, the leverage ratio of non-resident units has decreased significantly, while at the same time, the leverage of residents has increased significantly.
Due to the rise in housing prices, residents' leverage has risen significantly. Although it has shown a downward trend in the past two years, it is still at a higher level than in previous years. The following figure shows the proportion of domestic residents ’new and long-term loans to commercial housing sales. From this indicator, we can clearly see that there was a new round of residential residents’ leveraged behavior in 2016. The growth rate from 17 to 18 has narrowed but In 19, the data rose slightly. From the analysis of the development of the real estate market, it may be more obvious that the third and fourth tier residents have increased leverage. The increase in residents' medium- and long-term loan quotas will largely overdraw the consumption potential of residents, which will cause overdraft effects on the development of later markets. In 2019, residents' medium- and long-term loans accounted for 33% of the total sales of commercial housing, a slight increase compared with 2018.
The increase in residents' leverage will directly lead to less disposable income of residents, which will trigger chain changes in the consumer sector. The change is that more people are more willing to obtain more "value" goods through online shopping.
Figure 3 Residents' leverage in buying a house after 2009
Real estate cycle goes down, demand for building materials declines
The bull market in China's real estate market has passed, and the real estate price bull in 2016-2018 may be the last wave of China's real estate cycle to rise. The real estate market has shown strong resilience, which has also largely supported the prices of steel
and cement products. Zhuochuang Information establishes a steel demand model for real estate based on the newly started housing area. According to the prediction model, the steel used for real estate in 2019 is approximately 369 million tons, accounting for approximately 41.69% of the country's steel demand, an increase of 0.3 percentage points from last year. In 2020, China's real estate industry will continue to be in the bear market stage of China's real estate cycle. From the real estate company's land purchase area and real estate sales, it is estimated that the new housing starts in 2020 may decline sharply. The demand for steel for real estate fell slightly by 3% to 358 million tons.