Profits are declining, growth is peaking, and real estate development is in a period of anxiety about making money
Author: Zheng Na
The days of real estate blindfolded and making money are over.
Since the end of February this year, the new policy of centralized land supply has been implemented in 22 key cities one after another.
As of June 14, except for Shanghai and Wuhan, the remaining 20 cities have completed the first batch of centralized land auctions, with a total of 891.2 billion yuan in gold.
Real estate companies still have the enthusiasm for buying land, but the profit margins that land development can bring are no longer lucrative.
Earlier, after the first centralized land supply in Hangzhou, Binjiang Group's remarks of "striving to achieve a net profit level of 1%-2%" revealed the embarrassing reality of the real estate industry under its gorgeous appearance.
Among the cities that have concentrated on supplying land recently, the land prices in Chongqing, Wuxi, Beijing, Xiamen and other cities have risen to varying degrees, and the real estate companies' profit margins will continue to be compressed when they are superimposed on the price limit on the sales side in the future.
In this context, when will the real estate companies whose profitability is already in the downward channel usher in an inflection point?
At the real estate business performance meeting in 2020, most executives gave the answer 2021 or 2022, and even a pessimistic judgment is that even in 2024, the gross profit margin of real estate development will hardly reach an inflection point.
Falling into a cycle of not making money
On June 11, the first round of five-day centralized land supply in Chengdu ended. All 40 plots containing houses were sold, with a total transaction of 35.49 billion yuan, with an average premium rate of 7%.
Although the premium rate is not high, the enthusiasm for land auctions is not low, with over 70% of the plots hitting the highest price limit.
Under the influence of self-holding and price-limiting policies, Crane data shows that in comparison with the price of saleable flats, excluding the talent apartment plots, the average land-to-bath ratio of Chengdu land auctions is close to 0.7, while the land-to-bill ratio of some popular plots is close to 0.7. The ratio is close to 0.9.
It is not uncommon for profit margins to be significantly squeezed recently.
At the end of May, Ningbo carried out a centralized land supply. A total of 29 plots were sold in two days, a total of 19 plots were capped, and it entered the stage of self-ownership/equipped construction. 13 plots refreshed the surrounding transaction floor prices, and the premium rate was as high as 25%.
According to agency calculations, some of the land parcels sold this time in Ningbo have a land-to-land difference of less than 5,000 yuan/square meter.
An investment and extension person from an East China 100 billion real estate company said that in the Ningbo market, the real estate gap is about 7,000 yuan before it is the state of capital preservation.
In the two rounds of centralized land supply in Xiamen, C&D successively won two plots located on the island.
Although the location is superior, according to Kerui's calculations, one of the plots has a floor price of 67,800 yuan per square meter after excluding 13,200 square meters of auxiliary construction, which is under the price limit of 71,800 yuan per square meter. The remaining space difference is only more than 4,000 yuan/square meter.
According to the research report of Kerui, in cities such as Hangzhou, Shenzhen, Xiamen and other hot cities, more than 70% of the land-to-house ratios of the land parcels are sold, and the profit margin is small, especially after considering factors such as bidding and construction. There are problems with project profitability.
Even so, many real estate companies showed great enthusiasm in the first round of land auctions. Beijing attracted more than 50 real estate companies to compete in the first round of land auctions, while more than 80 real estate companies signed up in Nanjing and more than 60 in Suzhou. Home participation.
According to statistics from Huaan Securities, as of June 11, the total amount of land acquired by real estate companies such as Sunac, China Resources and Poly has exceeded 20 billion yuan.
According to the calculations of CITIC Construction Investment, the average implied gross profit margin of each project in Hangzhou, Wuxi, and Chongqing is 12.8%, 17.4%, and 6.7%, respectively, and the average implied gross profit margin of projects in the four cities of Changchun, Guangzhou, Shenyang, and Beijing. Between 25%-28%.
"This confirms that the real estate industry's gross profit margin will continue to decline from the original central 25% to about 20%, and even some cities fall into the range below 20%." China Securities Research Report shows.
In Lin Feng's view, affected by this, the industry's gross profit margin and net profit margin will be further reduced in 2023-2024.
"Because the land bought this year will not be carried forward until 2023 and 2024, so real estate profits will be further reduced by then."
Profit indicators continue to decline
Although it will take time for the impact of this round of centralized land supply to be transmitted to the overall level of the company, as the previous round of high-priced land entered the settlement period and price limit and other factors, the downward trend of industry profit indicators has taken shape.
According to data from Yihan Think Tank, from 2018 to 2020, the average net profit margins of the 50 typical real estate companies tracked by it are 14.55%, 13.98%, and 11.6% respectively, which are decreasing year by year, and the rate of decline is expanding.
Specifically, in 2020, among the 50 typical real estate companies, there are 28 real estate companies with a net profit margin of 10% and above, which is 10 less than in 2019. This also means that nearly 50% of the real estate companies have a net profit margin. In 2020, it has dropped to less than 10%.
At the same time, there are four real estate companies with a net profit margin of less than 5%, an increase of three from 2019.
Correspondingly, the average gross profit margin of the 50 typical real estate companies has also declined overall.
As of the end of 2020, this indicator was 24.7%, a decrease of 5.1 percentage points from the same period in 2019, and a total of 47 companies' gross profit margins declined.
Among them, 31 real estate companies have a gross profit margin between 20% and 30%. In 2019, the gross profit margin of real estate companies is mostly between 25% and 35%, with a total of 33 companies.
The research department of CITIC Securities concluded that the profitability of the report in 2021 may continue to decline.
"From the key corporate data disclosed in the quarterly report, the average and median gross profit margin and net profit margin in the first quarter of 2021 are both lower than in 2020." The research department of CITIC Securities said, "Combined with the vast majority of A shares and According to the guidelines for domestic real estate companies, we judge that 2021 will be a year in which the profitability of corporate statements continues to decline."
When will the turning point come?
"2020 is the low point of profit margins, and profit margin rebound is expected to be achieved in 2021 or 2022" is a more common view of real estate management at performance meetings.
China Resources Land said that it is expected that the gross profit margin level will reach the bottom in 2022, the lowest may be 25%, after which it will bottom out and rebound.
Rongxin China also stated that 2020 should be the process of bottoming out its gross profit margin, and "starts to gradually rise next year to the industry average level."
However, according to the calculation of Yihan Think Tank, from the land-to-market ratio of 50 typical real estate companies in 2021, more than 70% of the land parcels have a land-to-market ratio of 0.4 or more, which means that the project profit margins of real estate companies are generally Lower, so there is still pressure for future profit margin recovery.
And Lin Feng believes that the rebound time may be in 2025.
Scale top
When profitability continues to decline and the turning point is unknown, the growth of the entire real estate industry seems to have reached the ceiling.
According to data from the National Bureau of Statistics, the sales area of commercial housing nationwide reached 1.694 billion square meters in 2017, an increase of 7.7%. Since then, this indicator has basically stabilized. Between 2018 and 2020, they were 1.717 billion square meters, 1.716 billion square meters, and 1.761 billion. Square meters, the year-on-year growth rates were 1.3%, -0.1%, and 2.6% respectively.
According to Ding Zuyu, CEO of E-House China, with the sales area basically stable at around 1.7 billion square meters, the transaction amount can increase from 14 trillion yuan to 17 trillion yuan. On the one hand, housing prices are rising, on the other hand. The transaction structure has changed from three- and four-line dominated to first- and second-line transactions.
"In the future, it is generally expected that it will be difficult to make a significant breakthrough in the transaction area, so the industry has entered an era of no growth." Ding Zuyu predicted.
Greentown China’s management also believes that the real estate industry has now reached its peak and has entered a period of relative stability. “After the stabilization period lasts for a period of time, the overall real estate size will gradually decrease. The market in 2021 should be basically the same as in 2020.”
With the introduction of the "three red lines" policy in 2020, it will be difficult for real estate companies to drive scale growth through capital.
Ding Zuyu predicts that if there is no more capital to join in the future, the momentum of the entire industry to continue to move upward will be greatly weakened.
In fact, in recent years, the growth rate of the sales scale of the real estate industry has shown a slowdown.
According to data from Yihan Think Tank, from 2018 to 2020, the growth rate of contract sales of the 50 typical real estate companies covered by it has dropped from more than 30% to 13%.
Correspondingly, the settlement scale of real estate companies has also been affected, and the revenue growth of 50 typical real estate companies has also shown signs of slowing down, with a year-on-year increase of 32.1%, 25.36%, and 14.77% respectively.
Over the same period, with the decline in profitability, the profit scale of real estate companies has also experienced a rapid decline.
According to the data provided by Yihan Think Tank, the net profit growth rate of 50 typical real estate companies was 32.4%, 17.98%, and 4.78%, respectively, and the downward trend was even worse.
According to CITIC Securities, as of the end of 2020, the pre-payments of the sample companies covered by it accounted for more than 110% of 2020 operating income.
Although there are a large number of sold and unsettled resources that can guarantee the future growth of real estate companies, the profitability of the industry is further under pressure, which means that the future growth of the industry's performance is limited.
"On the whole, we believe that the overall profitability of the development industry has basically peaked, and even if there is growth in the future, it will not be very obvious." CITIC Securities believes.
Under the situation that the growth space in the future becomes more and more narrow, how to find the second curve may become a common new topic in the real estate industry.