Too exciting! Sun Hongbin, the head of Sunac, is about to enter the distressed assets market. Is this an attempt to bottom-fish in the real estate market?

Enter the game and buy at the bottom.

Although Sun Hongbin's entry into the distressed asset market has not been officially announced, it has been confirmed. Sun Hongbin is preparing to establish "Erjin Capital" and is also in contact with leading asset management companies, seeking strong financial support. In the near future, we may witness Sun Hongbin, as the "leading figure," leading a consortium of various funds to form a "united fleet" and enter the real estate distressed market.

Sun Hongbin needs no introduction, but it must be emphasized—"When the river water warms, the ducks are the first to know." As a seasoned real estate developer, Sun Hongbin's judgment on the industry must have his professional reasons. Moreover, Sun Hongbin is himself a "veteran" in the distressed asset market, known as the "acquisition king" in the real estate sector.

What are the characteristics of the non-performing asset industry? Profiting from non-performing assets is difficult during market downturns; only when the market reverses and the non-performing assets acquired at low prices during the downturn cycle increase in value can they become highly profitable. Has Sun Hongbin's entry into non-performing assets identified the bottom and the opportunity for market reversal?

Entering the game and buying at the bottom, perfectly aligned? Perfectly aligned, also, is the company's name: "Erjin." "The mighty pass of the mountain is like iron, but now we stride from the start." This well-known line comes from "Recalling the Loushan Pass" by Qin E. The poem was composed during the Red Army's Four Crossings of the Chishui River during the Long March.

As is well known, that was one of the most pivotal moments in Chinese history. Emerging victorious from the most perilous and difficult circumstances... Such a sentiment, when applied to today's real estate market, not only fits perfectly but also serves as a source of inspiration.

The question is, for the real estate market, there are two conditions to consider when trying to buy at the bottom: one, do you have the ability to buy at the bottom; two, has the real estate market reached the bottom.

The market really has bottomed out.

The first condition was addressed by Sun Hongbin's Sunac itself. On a certain date, Sunac announced that it would raise approximately HK$1 billion in the Hong Kong capital market. The term "financing" means that Sun Hongbin has settled the debt issues of Sunac, allowing the company to operate along its normal, predetermined path, including financing.

Since there is the ability to raise funds, of course, the money should be invested in the market that maximizes returns (the heavier the debt burden, the more important the efficiency of funds, and the better the results for all parties). Entering the distressed asset market and opening a second front outside of Sunac is essentially because Sun Hongbin sees opportunities in the distressed assets of the real estate market that offer greater profit potential than Sunac itself.

Think about Sun Hongbin's series of acquisitions in the past, including the case of Sunac itself. As long as he sees an opportunity, he has both the ability to raise money and the ability to spend it.

The second condition, has the real estate market bottomed out? Unlike Sun Hongbin's entry into non-performing assets, this matter has an "official announcement." On a certain date, the State Council Information Office held a press conference. Ni Hong, Minister of Housing and Urban-Rural Development, stated at the conference that under the series of policy measures, after three years of continuous adjustment, the Chinese real estate market has begun to build a bottom.

Many people may understand that the nature of Minister Ni's statement is a market judgment. But what if it is not just a judgment, but a description of an established fact? It has clearly told us, yet we still dare not believe? ... Really? Let's revisit the current policy landscape to see if we can confirm the trend Minister Ni mentioned.

The press conference on the date is also a comprehensive interpretation of the current real estate market policies, including: four cancellations - canceling purchase restrictions, canceling sales restrictions, canceling price limits, and canceling the distinction between ordinary and non-ordinary residential standards. Four reductions - reducing the interest rate on housing provident fund loans, reducing the down payment ratio for housing loans, reducing the interest rate on existing loans, and reducing the tax burden for "sell old, buy new" home exchanges. Two increases - implementing the renovation of 10,000 sets of urban villages and dilapidated houses, and increasing the credit scale for "white list" projects to 1 trillion by the end of the year.

The "White List" principle should be applied to all real estate projects that meet the "White List" criteria in the future, ensuring that they are included in the "White List" management system to the fullest extent. Special bonds for acquiring existing commercial housing should be decided and implemented voluntarily by local governments.

What does it mean when strong policy support plus market bottom judgment (description) is mentioned? Currently, the battered real estate market has been thoroughly soaked in various favorable policies without even realizing it. Which market has received such strong and detailed policy support? Lin Yuan said that stocks are full of gold. So what about real estate? When all negative factors are exhausted and the policy environment is full of benefits, could the real estate market, like stocks, potentially reverse from its bottom at any moment?

In fact, policies are just one aspect. The fundamental changes achieved through three years of market adjustment lie in the transformation of the real estate market, establishing a new roadmap for real estate investment. The real estate sector has begun to face the stock market head-on. Measures such as inventory reduction, delayed development, ensuring project delivery, quality improvement in development, "white list" policies, affordable housing, trade-in programs, and urban renewal not only stabilize the market but also provide new directions for market development.

Breaking through this bottom further down, the market has already lost momentum. However, new growth points are gradually emerging amidst these changes. For instance, just recently, Asset Insight published an article discussing China Fortune Land Development. Despite the severe debt issues it faces, China Fortune Land Development has already tied its future development to the new wave of industrial park development benefits by using "replacement belts."

Because whether it's the development of future cities, urban renewal, integration of urban and rural areas, industrial landings, or the incubation of new productive forces, they all rely on industrial parks. These driving factors, when materialized, become new growth points in the real estate market. Is the real estate market lacking breakthrough growth points? When real estate companies and the market transition successfully, growth points will emerge.

The bottom of the chart

On the policy front, opportunities have been laid out on the table. Now let's take a look at the market. According to Wind data, the number of commercial housing units available for sale (those that have obtained permits but remain unsold) in the top ten cities nationwide reached its peak in a certain month (approximately 10 million units). Although this figure has remained high, it has been on a downward trend overall, reaching about 9 million units by a certain month in 2023. In large cities, the number of unsold units has decreased by about 1 million each year.

The data from Wind shows that while the number of housing supply units in the real estate market has decreased, the number of transaction units in large and medium-sized cities across the country has also significantly shrunk. Monthly transactions have reached approximately 100,000 units, a historical low—the lowest monthly transaction volume since 2016. So, does this state of both supply and demand declining in the market indicate that the market bottom has been reached?

Let's take a look at two charts from the National Bureau of Statistics—the growth rate of funds raised in the national real estate market remained at -% in the month, but this indicator has shown a slight but noticeable recovery. The curve for the year up to the month is gently upward. The national real estate climate index curve mirrors the investment curve. Although the chart shows that the climate index is still at a "low level" (below) according to the standards of the National Bureau of Statistics, the trajectory of the index is also a gently upward curve.

The above two charts both strongly suggest a successful bottoming formation. Now let's look at another chart showing a bottoming and rebounding pattern—the Wind Real Estate Index, which is compiled based on listed real estate companies. This index curve generally follows the trend of the Shanghai and Shenzhen indices. After the new year, the real estate index curve has been significantly weaker than the Shanghai and Shenzhen indices, but the overall trend is similar. As the Shanghai and Shenzhen indices bottomed out and rebounded, the real estate index also rebounded in tandem.

It is noteworthy that the net loss in the real estate sector has significantly narrowed before bottoming out and rebounding. In other words, based on the chart above, the performance of listed real estate companies has improved, and there is certain support for a recovery.

Now let's look at two truly upward-trending curves—land transaction prices in first-tier cities are rising! Land premium rates in first-tier cities are rising! What does this mean? It means that developers in first-tier cities, sensing changes in the market ahead of time, are starting to take action.

Understand Sun Hongbin now? The two charts show the timing of his involvement in the distressed real estate market and the "official announcement" of the bottom, happening simultaneously. Sun Hongbin is not alone. He just happened to be the one who accidentally fired the shot.

Whether the real estate market has truly bottomed out will definitely require time to verify, but speculative funds cannot wait for time; they must rely on judgment. The so-called "bold capital" is bold enough when it sees profit.