On the morning of October 17th, the State Council Information Office held a press conference, where five ministries including the Ministry of Housing and Urban Rural Development, the Ministry of Finance, the Ministry of Natural Resources, the People's Bank of China, and the State Administration of Finance introduced relevant information on promoting the stable and healthy development of the real estate market. The content of the press conference can be summarized as the specific deployment for stabilizing the real estate market, including four cancellations (cancellation of purchase restrictions+price limits+sales restrictions+ordinary and non ordinary residential standards) and four reductions (reduction of housing provident fund loan interest rates+down payment ratio for housing loans+interest rate for existing housing loans+tax fees for purchasing new housing) for homebuyers. The meeting also emphasized two additions, one is to implement the renovation of one million sets of urban villages and dilapidated houses through monetary resettlement and other means; Secondly, by the end of the year, the credit scale of "whitelist" projects will be increased to four trillion yuan, and all eligible projects will be included in the "whitelist".
Obviously, for the construction machinery industry highly related to the real estate market, the term "shantytown renovation+four trillion yuan" has an exciting sense of familiarity. On the one hand, the "four trillion yuan" in 2009 rapidly promoted explosive market growth; On the other hand, the construction machinery industry, which quickly fell into a downturn period 12 years later, was driven by the shantytown renovation launched in 2016, which accelerated real estate investment and entered a new round of upward cycle. So, can the upcoming "4 trillion yuan" whitelist loan scale and 1 million sets of shantytown renovation projects drive the rapid recovery of the construction machinery industry like the previous two rounds?
This' four trillion yuan 'refers to the' four trillion yuan 'investment in various fields such as post disaster reconstruction, major infrastructure projects such as railways, highways, and machinery, as well as resettlement and affordable housing in 2009. It is reported that as of now, the approved loans for whitelist projects have reached 2.23 trillion yuan, and it is expected that the loan amount for whitelist projects will increase to 4 trillion yuan by the end of this year.
Although the loan scale of this whitelist project has increased to 4 trillion yuan, it is unlikely to drive the explosive growth of the construction machinery industry as quickly as the 4 trillion yuan investment in 2009. However, with the gradual arrival of 4 trillion yuan of funds for the whitelist projects that should be fully funded, fully borrowed, and disbursed as early as possible, the funding gap for the delivery of buildings has been basically covered. Industry insiders predict that the 4 trillion yuan whitelist can cover approximately 20000 projects nationwide.
Therefore, projects that have been suspended or delayed will resume work as soon as possible or accelerate the construction progress, which is beneficial for improving the rental rate of mechanical equipment for lessors or contractors. At the same time, as the whitelist of 4 trillion yuan is gradually implemented, the overdue receivables of lessors or contractors will gradually flow back and be transmitted to agents, OEMs, and suppliers.
Looking back at the previous round of shantytown renovation from 2015 to 2018, we can see that the goal of "destocking" was achieved through shantytown renovation and monetary resettlement. During the four years from 2015 to 2018, the monetary resettlement of shantytown renovation drove an average of 15% of new house sales.
At the same time, the monetization of shantytown renovation has changed the supply-demand relationship in the real estate market after 2017. On the one hand, the monetization of shantytown renovation has restored the market supply-demand pattern of oversupply, and housing prices have rebounded and even risen; On the other hand, homebuyers who receive funds for monetary resettlement not only purchase houses for their own use, but also invest the resettlement funds in purchasing more properties, thus forming a virtuous cycle. With the sharp rise in housing prices, it further stimulates more real estate investment to join.
With the gradual end of shantytown renovation projects and monetary resettlement, coupled with real estate developers constantly increasing leverage, expanding land and building large projects, the supply and demand relationship in the real estate market quickly became imbalanced, and various indicators of the real estate market entered a downward trend 20 years later.
Obviously, as one of the main upstream industries in the real estate market, construction machinery has also benefited from the booming real estate market driven by shantytown renovation. After hitting bottom in 2016, it quickly rebounded and entered a new upward cycle. It is precisely because the real estate market gradually declined 20 years later that the industry once again fell into a downward cycle.
Compared to the previous round of shantytown renovation policies in third - and fourth tier cities and regions, the renovation of 1 million urban villages and dilapidated houses this time may be more concentrated in first - and second tier high-energy cities and metropolitan areas, with limited impact on cities and regions below third tier. At the same time, the investment in shantytown renovation from 2014 to 2018 reached 6.2 trillion yuan, and it remains to be seen how much capital can be leveraged by this one million unit shantytown renovation. In addition, will the monetary resettlement of this shantytown renovation adopt more financial compensation methods as in the previous round? Industry insiders predict that it may be carried out through models such as "house tickets" or "exchanging houses for houses". So, whether it can quickly improve market fundamentals like the previous round of monetary resettlement in shantytown reform also needs to be further observed.
However, regardless, the policy is favorable for the construction machinery industry. On the one hand, adding 1 million sets of urban village renovation monetization resettlement, referring to the 2017 shantytown renovation, is expected to drive nearly 100 million square meters of residential sales, which can repair the supply-demand relationship in the real estate market. With the stabilization of the real estate market, the downward cycle of the construction machinery industry will also bottom out and rebound.
On the other hand, the renovation of 1 million sets of urban villages/dangerous houses stimulates project demand, which benefits the equipment rental rate (utilization rate) of lessors or contractors, and the increase in demand stimulates the sales of new machines by OEMs/agents. It is expected that major regional markets may experience a certain degree of recovery and rebound in 2025, and even some construction machinery products may experience a small peak in sales during the peak season in the first half of next year. Focusing on the renovation of one million sets of sheds in first and second tier cities, as well as the potential increase in population siphon effect through the "four cancellations+four reductions," will obviously exacerbate the differentiation speed of the construction machinery market in various regions. Therefore, how to deal with the market that intensifies structural differentiation in various regions will be one of the main issues faced by OEMs, suppliers, agents, and lessors!
At the same time, with the gradual arrival of 4 trillion yuan of whitelist project funds before the end of the year, the completion area will inevitably accelerate. However, under the "strict control of increment, optimization of stock, and improvement of quality", the newly opened area is likely to continue to decline in the short term, which will exacerbate the decline in construction area and may lead to a further sharp drop in sales and rental rates of products highly related to the real estate construction industry, such as tower cranes, in the short term.