Citigroup: The domestic housing industry has entered the third round of changes and is optimistic about China's overseas development (00688), China Resources Land (01109), etc.

The Zhitong Finance App learned that Citibank released a research report saying that China's real estate industry is entering the third round of transformation, shifting from a pre-sale system that has been in use for over 28 years to an existing building sales model. Together with the introduction of the project company system and host bank system, it is a comprehensive restructuring of the real estate development and financing model, and marks the second round of supply-level reforms in the industry. The bank is optimistic about industry leaders. Preferred stocks include China Overseas Development (00688), China Resources Land (01109), Seashell-W (02423), and China Jinmao (00817), all with a “buy” rating; the target prices are HK$18.3, HK$43.1, HK$75.4 and HK$2.3, respectively.

The bank pointed out that according to the new financing framework of the People's Bank of China and the State Financial Supervisory Authority, mortgage loan funds must be disbursed after the project is completed and registered. Cash returns will be delayed until completion, and the cash conversion cycle will be lengthened. In terms of the physical market, the supply of new buildings in core cities will be pressured by extending the sales cycle from 6 to 10 months to 1.5 to 2.5 years, which will help rebalance supply and demand more quickly and support the stabilization of property prices next year; purchasing power will flow to the second-hand market, and new buildings will only compete at the product level. The bank also estimated the mainland's land sales revenue this year to be around 1.8 trillion yuan.

As far as housing enterprises are concerned, Citi believes that the policy may reduce profits by 8 to 17%, the net profit margin for developing properties to drop from 6% to 4%, and the internal return on projects from about 20 to 25% to 3 to 7%; to offset the impact on profits, property prices need to increase by about 7%, and to offset the impact on return on equity, housing prices will need to increase by more than 40%. If developers want to maintain a similar sales scale, they may need to invest 70 to 120% more of their own capital, or increase operating leverage by relying on supplier balance sheets.