Recently, many experts and scholars are predicting the direction of the real estate market next year. Among them, the views of Deng Haiqing, chief investment officer of AVIC Fund, are the most radical and worth mentioning. In his view, "real estate will rebound with a retaliation in 2023." The explanation he gave is, "The main reason for the decline in real estate is that young people have become unemployed in the past two years. In the past two years, the mother-in-law's demand for buying a house or having a baby has been delayed. In 2023, when the demand for these two aspects recovers, there will be a retaliatory rebound."
Why is Deng Haiqing's view worth mentioning? It's because Tie Hammer saw that no less than 4 real estate agents have changed his opinion in the circle of friends, and two of them wrote in the following text: experts said that housing prices will rebound with a vengeance next year, so you must hurry up and buy a house at the end of the year. I would like to remind you this last time, the discount will only be reserved for the last week. Those friends who cannot seize the opportunity, please don't cry and beg me for a discount next year.
Immortal Again, real estate has been cold for more than two years, and many people are already impatient. This is actually easy to understand. Some people just eat this bowl of rice. Their relationship with real estate can be regarded as a "lip-tooth relationship" - the lip is dead and the teeth are cold. Real estate agents, in particular, are typical examples of relying on the weather. When the market is good, real estate transactions are large, profits are high, and they speak tough, and their attitude is naturally arrogant and domineering. However, when the market is sluggish, it is also common for them not to open for half a year. If the market is not good, of course you will be anxious and everything will look good.
2022 can be called the "darkest moment" of real estate. I will not include the data on declining sales and falling housing prices. Instead, I will show a set of data that many people don't know: According to data from the Keyan Think Tank, 400,000 people will leave the real estate development industry in 2022, while the upstream and downstream industries of real estate development will lose 6 million jobs. Seeing this, everyone should be able to understand why so many people are looking forward to real estate being out of trouble as soon as possible - it is not only one of the important pillars of the national economy, but also related to the livelihood of tens of millions of practitioners.
Without further ado, will there really be a retaliatory rebound in real estate in 2023? For example, there is a retaliatory surge in demand and a retaliatory rise in housing prices.
Let’s talk about the conclusion first: Iron Hammer feels that the possibility of this is zero. Whether it is first-tier cities such as Beijing, Shanghai, Guangzhou and Shenzhen, or small counties in the 18th tier, the probability of a retaliatory rebound in real estate next year is zero. Of course, it cannot be denied that many cities will still give priority to real estate recovery next year. In order to achieve this goal, many cities will continue to implement policies.
The property market will still be very divided in 2023. Large and medium-sized cities with a growing population, an economic foundation, and resource advantages may gradually recover and slowly recover, but they will not return to the level before 2020. Other low-energy cities will most likely continue to suffer, especially many underdeveloped cities with a serious excess of houses. The demand for home purchases has dropped sharply, housing prices have fallen, and transaction volume has continued to decrease, which may be the main theme of the market.
First, after three years of pandemic and coupled with the economic downturn, many industries have encountered severe challenges, and some have even been completely wiped out. Especially industries that focus on offline scenarios, many cannot survive alone. Such as catering, film and television, tourism, weddings, travel chains, etc. According to statistics from Tsinghua University Professor Zheng Yuhuang, in the first half of this year alone, 460,000 companies went bankrupt across the country, and about 3.1 million industrial and commercial households were deregistered. All waste is waiting to be revitalized, and economic development, people's housing and employment, etc. have all been seriously affected. The result is that people's income has dropped sharply.
Some people may say, that's not right. Data released by the central bank show that residents' deposits increased by 15 trillion in the past year. This money can be used for consumption in 2023. If all flows to real estate, it will have a huge boosting effect on housing prices.
I can only say that abacus is really good, but this idea is unrealistic, because residents’ huge savings are necessary savings to cope with uncertainty. After three years of being taught a lesson by the epidemic, many families have long developed the habit of preparing more food, grass and ammunition. This habit will not be easily changed just because of a few words from experts advocating and stimulating consumption.
What's more, it is still unknown what the epidemic situation will be in 2023. Referring to the United States, it has been almost a year since full liberalization. The epidemic situation is still up and down, and the mortality rate has increased significantly recently. Some areas in the United States have even restarted antigen testing. Therefore, we cannot be too optimistic. What is also certain is that from now to March next year, the country will be in the stage of repeated infections, that is, the stage of active suppression. During this period, all economic activities will not be strong. Big-ticket household purchases like housing are even less likely to rebound with a vengeance.
Second, not to mention, everyone’s attitude towards real estate in the first quarter of next year has actually become clear: On December 27, the central bank released a report showing that 86% of people expected “stable or falling” for the trend of housing prices in the next quarter, and less than 14% expected “rising”. In addition, in the first quarter of 2023, only 16.0% of residents plan to buy a house, compared with 17.1% of the former. It is worth mentioning that this value also hit a new low in six years.
Regarding the housing price trend and outlook on home buying next year, bank depositors who participated in the survey have already given the answer: the willingness to buy a house is seriously insufficient, hitting a six-year low, and they are also pessimistic about the housing price trend. Based on this point of view, experts’ so-called “retaliatory rebound in real estate in 2023” is actually untenable in the short term.
The first two items are based on the analysis of the economic environment and the attitude of home buyers. Next, Iron Hammer will discuss fundamentals such as housing supply and demand, inventory backlog, and residential sector leverage that affect real estate trends:
Third, real estate has officially entered a new cycle. The biggest feature of past cycles was that supply exceeded demand, so no matter how it was regulated, housing prices would eventually rise. Now the fundamentals of the market are that supply exceeds demand. A market with oversupply means that 80% of investment demand will withdraw from the market, and a retaliatory rebound in real estate will lack momentum.
Fourth, statistics from the Bureau of Statistics show that in the first 11 months of this year, the sales of real estate companies fell by nearly 30% year-on-year. Conservative estimates suggest that the sales scale of real estate this year may only reach 14 trillion, which is much higher than the 18 trillion in 2021. On the other hand, this shows that the property market inventory will increase by 4 trillion in 2022. The pressure to eliminate these inventories has been postponed to 2023.
According to data from E-House Research Institute, the inventory depletion cycle of new homes in 100 cities was as high as 23 months at the end of November. As of the end of November, the narrow inventory in 100 cities reached 594.28 million square meters, a month-on-month increase of 1%. Specifically, among the first-tier cities, Beijing, Guangzhou, and Shenzhen all have decontamination cycles of more than one year; among the 26 second-tier cities, nearly half of the 26 second-tier cities include Lanzhou, Zhengzhou, Harbin, Dalian, Hohhot, Shenyang, Wuhan, Qingdao , Changchun, Xiamen , Chongqing, and Fuzhou. The inventory digestion cycle in several cities exceeds 2 years, and only 5 cities including , Suzhou, , Hangzhou, and Hefei have a depuration cycle within 12 months. The situation in third- and fourth-tier cities is even more severe, with a depuration cycle of up to 26 months. Inventory pressure has increased sharply, and 50 out of 70 cities have a depuration cycle of more than 20 months.
Fifth, the real leverage ratio of my country’s residential sector is higher than many people imagine. Data released by the central bank show that the residents’ leverage ratio was 62.1% at the end of 2021, which did not increase but decreased from 2020. However, this value is obviously low. The reason is that the central bank calculates the resident leverage ratio based on resident debt/GDP, and the calculation of GDP includes corporate and government income. Therefore, the real resident leverage ratio should remove government revenue. In other words, resident debt/resident disposable income is the real leverage ratio of Chinese residents.
At the end of 2021, the total debt of Chinese residents was as high as 73.29 trillion, and the disposable income of residents was 68.6 trillion, and the ratio between the two was 106%. Therefore, 106% is the true leverage ratio of my country’s residential sector.
Residents' leverage ratio is too high, which can easily cause a crowding-out effect on consumption, and residents' happiness will also decline. Not only that, too high a leverage ratio can also easily bring about corresponding financial risks.
Based on the above analysis, Iron Hammer believes that the probability of a retaliatory rebound in real estate in 2023 is basically zero. On the one hand, the entire economic environment lacks confidence; on the other hand, the fundamentals of real estate itself are not supportive. Especially on the short-term supply side, there are still three major problems that inhibit the interest of home buyers: unfinished properties, insufficient income expectations of residents, and weak expectations of rising housing prices.Unless these problems are completely resolved, it will be difficult to restore market confidence. Personally, I think it would be good if the confidence of home buyers could recover to 80% to 90% in 2023, but it is simply wishful thinking to imagine a retaliatory rebound.
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