Explanations

Why should we pay attention to A-share listed real estate enterprises? Because we think:

(1) A-share listed real estate enterprises cover large and small, as well as private and state-owned, distributed across all of major first-tier, second-tier and third-tier cities nationwide, the operating condition of which is very likely to be an epitome of the whole real estate industry.

(2) The operating data of listed real estate enterprises are more authentic, and can better reflect the status quo of the industry.

What kind of operating date of an enterprise should we pay focused attention to?

(1) Liability status.

(2) Short-term debt paying ability.

(3) Inventory status.

Why should we pay focused attention to these data?

Because:

(1) The overall liability situation would affect the enterprise’s long-term re-investment ability and re-financing arrangements (e.g. inclined to debt financing or equity financing).

(2) The debt paying ability and the inventory status would affect the enterprise’s short-term land acquisition and new start practices, and meanwhile, would affect the enterprise’s short-term sales strategy, e.g. whether inclined to price reduction. Therefore, attention to the operating situation of A-share listed real estate enterprises will be conducive to our better judgment of industry investment and price trend.

Note: Samples of this research include 108 A-share development-class listed real estate enterprises, park-class real estate enterprises excluded (e.g. Lujiazui, Waigaoqiao, etc.)

Core Conclusions

As of the interim report in 2014, the asset-liability ratio of 108 A-share development-class listed real estate enterprises created a new high at 75.6%, and net liability ratio created a new high at 93%, wherein, the value of “non-Zhao Bao Wan Jin” real estate enterprises rose to 111.8%, while the cash and inventory ratio was only 16.4%, creating a new historic low (see part one of the report for details). In the context of the housing market staying at a relative high position, it’s unrealistic for an enterprise to maintain such a high level of liability ratio, and it’s predicted that, “de-leveraging” will be the operating strategy that most enterprises have to choose. There are two paths for de-leveraging: first, compress investment and reduce expenditure; second, increase equity financing and reduce debt financing. These two paths are estimated to occur concurrently in the future. Compressing investment will reduce industry supply, make good for supply-demand balance, reduce land market competition, and also bring opportunities for real estate enterprises with abundant capital to expand through land acquisition at lower costs. The evolution of second path will bring more project opportunities for real estate funds with proactive management capability and good at equity investment. WINS’s future focuses on equity fund, on the strategic level, will be in line with the industry trend (not only real estate enterprises, the liability ratio of Chinese enterprises as a whole is on the high side; by the end of 2013, the average asset-liability ratio of top 500 in China was high at 84%. Activating the channels for listed enterprises to carry out equity financing through the stock market is a way to relieve the high-liability risk of enterprises. This might also be an important reason for the government’s current high attention to the capital market).

As of the interim report in 2014, the cash coverage and short-term interest-bearing debt ratio of 108 A-share development-class listed real estate enterprises dropped to 0.9, close to the historic low, wherein, that of “deducting Zhao Bao Wan Jin” real estate enterprises dropped to a new historic low at 0.7, with their short-term debt paying ability being very poor (see part two of the report for details). The de-stocking cycle of 108 A-share development-class listed real estate enterprises was 12.5 quarters, rising to a new historic high, especially, that of “deducting Zhao Bao Wan Jin” real estate enterprises reached 15.4 quarters, with the inventory pressure of real estate enterprises as a whole being very heavy (see part three of the report for details). Such high debt paying and inventory pressure means the land market will continue the cold situation, and while in the sales market, “price for volume” might still continue for a stage.