last year, the real estate industry has accelerated downward. Each downward cycle of the real estate industry is more fierce and more extensive than previous downward cycle. This time, the impact will be profound. With the decline of real estate investment and the number of new projects, the impact on cement demand is expected, but the extent of the impact is unexpected. What is the reason for such a large impact? What is the next "hope" to balance the shrinking demand for cement in real estate? Since
2000, the downward cycle of real estate has become more and more violent
. This paper divides the cycle on the basis of the housing boom index issued by the National Bureau of Statistics. Since 2000, China's real estate market has experienced four downward cycles, which began in December 2021. Since the second half of 2021, although real estate sales have cooled down, the overall operation has remained stable, and the downward speed of the market has accelerated after December 2021.
Compared with the demand and profit data of the cement industry, each round of the downturn of the real estate industry has had a significant impact on the operating efficiency of the cement industry, and each time is greater than other. It took less than a year for the first round to rebound significantly, while the second, third and fourth rounds of industry profit decline were more and more violent, and the time needed to go through was longer and longer.
Table: Since 2000, Four Downward Cycles
of Real Estate Data Source: Cement Big Data (https://data.ccement.com/)
The real estate market has yet to stabilize
. The main problem in the real estate market is liquidity rather than lack of demand. Housing speculation has shut out speculators, and the last batch of newly needed buyers are still in the "burden" of high leverage, while the new planned entrants are hesitant because of unstable personal economic expectations and high housing prices, and the number of new newly needed buyers is also rapidly decreasing. Housing prices and income (and income expectations) do not match, and the short-term motivation of the improvers is insufficient. Some of the newly needed people turn to the third and fourth-tier cities where housing prices and income are more matched and living standards are still acceptable. Although the first and second-tier cities gradually adjust their purchase restrictions and credit policies, they still need to be stabilized. In the first quarter of 2023, the per capita disposable income of residents increased by 3%, significantly lower than mortgage interest rate level, and the interest rate level still has downward space.
Figure 1: per capita disposable income growth of 3%
in the first quarter of 2023 Data source: cement big data (https://data.ccement.com/)
Real estate market is still the pillar industry
of the real estate industry The downward trend not only affects the demand for cement on the real estate side, but also affects the demand for cement on related supporting municipal projects. The three-year epidemic has increased the correlation between the two, resulting in the amplification of the impact on cement demand. From January to May, urban investment bonds issued a total of 267 billion 900 million yuan, an increase of 24% over the same period last year. As the revenue from land transfer continues to decrease (data from the Ministry of Finance show that the revenue from the transfer of state-owned land use rights from January to May was 1489.3 billion yuan, down 20% from the same period last year), government expenditure has increased. Although urban investment debt has increased this year, borrowing new debt to repay old debt has also increased significantly. Due to financial problems, the commencement and construction progress of municipal projects are affected, which in turn affects the demand for cement.
The national level has made it clear that the real estate market is still a pillar industry. The author believes that the demand for cement in real estate is irreplaceable, and the next hope will still be "real estate".
(1) Real estate will eventually bottom out, and the demand for quality housing is expected to open up new space
. From January to May, the sales area of commercial housing declined by 0.9% year-on-year, which has been significantly narrowed compared with the same period last year, while the completed area rebounded by 19.6%. The "completion bottom" of the real estate market has been realized, and the "sales bottom" may still be early from the real bottom. The recovery of the real estate market is a slow process in stages, and the "start bottom" will be later. At present, "guaranteed delivery" is still the main line of real estate policy, rather than so-called stimulus policy to "rescue the property market" to boost domestic demand. From the perspective of enterprises, some housing enterprises have recently continued to emphasize the late operation around "guaranteed delivery". At present, there are still difficulties and blockages in "guaranteed delivery", and the policy needs to be further strengthened.
Figure 2: From January to May 2023, the sales area and new construction area of real estate still maintained negative growth
Source: Cement Big Data (https://data.ccement.com/)
However, The "bottom of sales" and "bottom of construction" will eventually come, and real estate will eventually bottom out (or in the first half of next year). After bottoming out, the author believes that the real estate market will enter a more stable and healthy stage and continue to play a key role in the cement demand structure.
Recently, the Minister of Housing and Construction stressed that "exploring the establishment of housing pension system to provide life cycle security for housing." At present, our housing quality problems are prominent, especially the sales of futures houses have greatly increased the problem of safeguarding rights after sale, and the cost of housing maintenance has increased significantly. At the same time, with the increase of housing age and the increase of housing security risks, the housing quality of residents needs to be improved urgently, and the exploration of housing pension system is conducive to rethinking the next generation of housing standards. However, the problem of funds is still a difficult problem to solve, especially the problem of demolition after the age of the house also involves a huge scale of funds. China needs to establish a corresponding mechanism to solve this part of the problem, so as to promote the housing of our residents to a higher quality. In this process, the demand for quality housing is expected to open up new space, and the corresponding supporting municipal projects are also facing the requirements of quality improvement.
(2) The space of traditional large-scale infrastructure projects such
as expressways and high-speed railways will gradually become limited in the future, or accelerate the demand for cement at the end of large-scale infrastructure. On the one hand, the benefits of large infrastructure projects are not optimistic, railway and highway projects need operating and maintenance costs, as well as corresponding financial costs, while the corresponding benefits are difficult to achieve break-even. Taking highway as an example, the whole toll road industry in China has had a revenue and expenditure gap for many years since 2015, and the gap is expanding. In 2021, the total revenue of vehicle tolls on toll roads in China was 663.05 billion yuan, but the total expenditure was 12909 1.03 billion yuan, and the liabilities were even more astonishing. Operational problems will restrict the strength of follow-up infrastructure construction. On the other hand, moderately advanced investment in infrastructure construction will overdraw the follow-up demand ahead of time, coupled with the reduction of the scale of some infrastructure projects such as rural roads, which will have an important impact after 2025. Among them, the time point in some areas has come ahead of schedule.
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