Summary of China Property Weekly Wrap Industry Overview - The report focuses on the **Chinese property market**, highlighting transaction trends and market sentiments during Week 33 of 2025. Key Highlights - **Inventory Buyback Initiatives**: Policymakers are preparing to mobilize central state-owned enterprises (SOEs) to purchase unsold homes from distressed property developers. The People's Bank of China's Q2 monetary policy report emphasizes the need to enhance existing supportive measures, including the ARH relending program, which has an issuance balance of Rmb16.2 billion by the end of Q3 2024 against a total quota of Rmb300 billion, aimed at stabilizing the housing market and optimizing financing systems for the property sector [1][2]. Market Performance - **Transaction Volumes**: - Primary market transactions increased by **9% week-over-week (wow)** but decreased by **17% year-over-year (yoy)**. - Secondary market transactions decreased by **2% wow** and **1% yoy**. - Overall, the market sentiment remained stable, with new home search activities unchanged week-over-week, while secondary home visitor traffic improved by **3% wow**. However, secondary price expectations from agents weakened by **0.7 percentage points (pp) wow**, marking the second consecutive week of softening [2][5]. Key Data Points - **Sales Performance**: - New home sales volume averaged **+9% wow** and **-17% yoy**, with tier-3 cities and the Pearl River Delta (PRD) outperforming. - Secondary transactions averaged **-2% wow** and **-1% yoy**, with negative price appreciation expectations from agents but not homeowners. - Year-to-date (YTD) primary gross floor area (GFA) sold was down **7% yoy**, while secondary GFA sold was up **12% yoy** [5][25]. Inventory and Valuation Insights - **Inventory Levels**: - Inventory balance decreased by **0.1% wow** and **4.0% from end-2024 levels**, with inventory months at **25.8** (compared to an average of **26.0** in July 2025) [35]. - **Valuation Trends**: - Offshore coverage developers saw an average share price increase of **6% wow** (compared to **3% for MSCI China**), with CR Land and Greentown outperforming at **+11%** and **+10% wow**, respectively. Onshore developers averaged **+2% wow** [46][48]. Completions and New Starts - **Completions**: - The GSPC tracker indicates a **20% yoy decline** in completions for August 2025, compared to a **29% yoy decline** in July 2025 [40]. - **New Starts**: - New starts are expected to record a mid-teens level yoy decline in August, based on land sales trends in 300 cities and a **+2pp wow** increase in nationwide cement shipment ratios [40]. Implications for the Market - The report suggests that property sales in approximately **75 cities** indicate a likely **17% yoy decline** in presales for top-100 developers in August, compared to a **27% decline** in July [7]. - The overall sentiment in the property market remains cautious, with ongoing challenges in sales and price expectations, despite some positive movements in specific segments [6][7]. Conclusion - The Chinese property market is experiencing a plateau in transaction volumes, with mixed performance across different city tiers. Policymaker interventions and market stabilization efforts are crucial as the sector navigates ongoing challenges and seeks to transition to a new development model [1][2][6].

Summary of the Conference Call on China's Property Market Industry Overview - The focus is on the **China Property** market, specifically addressing the challenges of clearing housing inventory and stimulating demand in the context of economic recovery. Key Points and Arguments 1. **Positive Feedback Loop**: Forming a positive feedback loop is essential to overcome deflationary pressures and weak demand, drawing lessons from historical government interventions in the 90s Shanghai property market [1] 2. **Supply and Demand Dynamics**: There is a need to build more housing units in tier-1 and tier-2 cities, with a benchmark housing supply ratio of 1.1-1.15X observed in developed countries. This could help revive upstream industries and stimulate demand [2] 3. **Historical Context**: The current housing industry and macroeconomic backdrop differ significantly from the late 90s, suggesting that the impact of accelerated housing construction will be smaller than in previous cycles [2] 4. **Funding Requirements**: Developers may require a liquidity injection of **Rmb1.4tn-2.8tn** to cover incremental construction and land purchases, with an ideal scenario needing up to **Rmb1.1tn** if demand stimulus is effective [5] 5. **Household Subsidies**: To improve affordability, an estimated **Rmb0.2tn-1.0tn** in subsidies may be necessary, alongside further mortgage easing and removal of home purchase restrictions in tier-1 cities [5] 6. **Market Activity Recovery**: Property market activities are expected to moderately recover to 2022-2023 levels under different scenarios [7] 7. **ASP Trends**: There has been a renewed weakening trend in Average Selling Prices (ASP) across 70 cities, with Class I cities experiencing the steepest month-on-month decline since October 2024 [10][11] 8. **Inventory Management**: Without additional sales, inventory levels in tier-1 and tier-2 cities could surge significantly, necessitating additional sales volume to maintain manageable inventory levels [65] Additional Important Insights 1. **Historical Case Study**: The late 90s housing market reform in China led to oversupply but was eventually resolved through targeted stimulus measures, which could provide a framework for current policy responses [27][28] 2. **Economic Contribution**: The property sector's contribution to GDP has decreased from a peak of 27% to the high-teen percentage level, indicating a need for revitalization [48] 3. **Developer Implications**: Liquidity injections are expected to benefit developers with land banks in higher-tier cities, but increased supply competition may pressure pricing and delay margin recovery [82][83] 4. **Leverage and Funding Gaps**: Developers may face significant funding gaps, with estimates suggesting a gap of **Rmb4.2tn-5.7tn** by the end of 2026 under different scenarios [55] 5. **Affordability Challenges**: The average home price to income ratio in tier-1 cities is above 20X, indicating a significant affordability gap that needs to be addressed through subsidies and easing of restrictions [64][72] This summary encapsulates the critical insights and data points discussed in the conference call regarding the current state and future outlook of the China property market.

Summary of Key Points from the Conference Call Industry Overview - The focus is on the **China Real Estate Equities** sector, particularly the implications of **mandatory convertible bonds (MCB)** on distressed developers [1][2]. Core Insights - **Debt Restructuring Risks**: Despite some progress in debt restructuring for distressed developers, there are significant risks associated with MCBs, particularly regarding share dilution and its impact on share prices. This is crucial for investors seeking beta opportunities [2][3]. - **Sunac Case Study**: The share price of **Sunac** was initially supported by debt restructuring progress but faced substantial pressure post-MCB conversion, with an estimated share increase of **75-114%** upon conversion leading to considerable downside risks [3][10]. - **Investor Sentiment**: There is a rising risk appetite among investors, as evidenced by the resilience of stocks like **Greentown** and **C&D** following profit alerts and share placements. Mid-cap developers are viewed as having better risk-reward profiles due to stronger fundamentals [4]. Stock Preferences - **Preferred Stocks**: **CR Land** and **C&D International** are rated as "Buy" due to their strong execution capabilities and potential for alpha generation. Both companies have seen **36-44%** year-to-date share price gains, with expectations for further catalysts such as margin recovery and new land acquisitions [5][8]. - **Market Conditions**: Disappointing national data is expected to have a lesser impact on the share prices of these preferred stocks compared to risks such as lower-than-expected sales and prices of high-end projects, cooling land markets, and macroeconomic concerns [5]. Additional Considerations - **Valuation and Risks**: The report outlines the valuation methodologies for CR Land and C&D, emphasizing the importance of maintaining sales momentum and managing margin expectations. Risks include potential slowdowns in land acquisition and sales deterioration [23]. - **Market Dynamics**: The report highlights the broader market dynamics affecting the real estate sector, including the impact of MCBs on share capital and the overall sentiment towards distressed developers [8][12]. Conclusion - The analysis underscores the complexities within the China real estate sector, particularly the implications of MCBs on share dilution and investor sentiment. The focus on specific stocks like CR Land and C&D reflects a strategic approach to navigating potential investment opportunities amidst ongoing market challenges [2][5][8].

Investment Rating - The report does not explicitly state an overall investment rating for the industry but highlights specific companies with "Buy" and "Sell" recommendations [49][50]. Core Insights - The primary market is experiencing a continued decline, with new home sales volume down 30% week-over-week and 26% year-over-year, while tier-3 and Central & Western cities are outperforming [5][9]. - Secondary market transactions are showing a slight decline, with average sales down 2% week-over-week and 3% year-over-year, indicating negative price appreciation expectations from agents and homeowners [26][28]. - The focus on urban renewal policies is expected to positively impact the market, particularly through demand-side stimulus measures such as urban village redevelopment [2]. Summary by Sections Market Performance - New homes sales volume decreased by 30% week-over-week and 26% year-over-year, with tier-3 and Central & Western cities outperforming [5]. - Secondary transactions were down 2% week-over-week and 3% year-over-year, with negative price expectations from agents and homeowners [26]. - Year-to-date, primary gross floor area (GFA) sold is down 1% year-over-year, while secondary GFA sold is up 16% year-over-year [8][28]. Inventory and Completions - Inventory balance decreased by 0.1% week-over-week and 3.9% from the end of 2024, with inventory months at 26.0 [36]. - Completions are expected to decline by mid-to-high teens year-over-year for June 2025, with a projected 10% decline for the full year [41]. Valuation and Developer Performance - Offshore developers saw an average share price increase of 6% week-over-week, outperforming the MSCI China index [49]. - Onshore developers averaged a 2% increase week-over-week, with specific companies like China Jinmao and Longfor receiving "Buy" ratings [49][50]. - The average price-to-book (P/B) ratio for offshore and onshore coverage is at 0.5X for 2025E, indicating a significant discount to net asset value (NAV) [49].

Investment Rating - The report maintains a positive view on select covered developers, reiterating Buy ratings on CRL, COLI, Greentown, Jinmao, and Longfor [6][50][51]. Core Insights - The housing supply ratio in China is currently at 1X, which is lower or comparable to other sample countries, indicating potential for improvement as inventory is disclosed [2][8]. - The report identifies that 37% of sample cities have a housing supply ratio below 0.9X, while 26% have a ratio above 1.1X, with the excess inventory concentrated in Tier-3 and Tier-4 cities [8][14]. - The analysis suggests that a long-term housing supply ratio of 1.1X is reasonable, implying a potential funding need of Rmb0.7tn-1.6tn for inventory buybacks, which is equivalent to 0.5-1.2% of national GDP [6][35][36]. - The government has accelerated land buyback efforts, announcing nearly Rmb400bn in buybacks, primarily focused on lower-tier cities [6][37][47]. Summary by Sections Housing Supply Ratios - The report examines 78 cities, accounting for approximately 50% of China's population and housing stock, revealing a housing supply ratio of 0.7X for Tier-1 cities, 0.89X for Tier-2 cities, and 1.02X for Tier-3/4 cities [6][8][11]. - The report builds four illustrative cases to analyze how housing ratios could change based on different assumptions regarding urban household formation and living space per capita [27][28]. Inventory Analysis - As of end-1Q25, the sample cities are estimated to have 1.5 billion square meters of unsold residential inventory, with nearly half remaining as raw land [22][25]. - The average saleable inventory is projected to last 26 months, while total unsold inventory could take up to 6 years to clear [25][22]. Developer Performance - The report highlights that covered developers have shown more resilient primary average selling price (ASP) performance compared to secondary markets, with a significant portion of land investment concentrated in top-performing markets [50][51]. - The expected improvement in margins and return on equity (ROE) beyond 2027 is supported by better investment strategies and decreasing contributions from older low-margin land banks [51][60].

20 May 2025 | 7:01AM CST China Property Weekly Wrap Week 20 Wrap - Transactions rebounded with more upbeat performance from export-oriented cities Key highlights for the week: Our tariff impact assessment (Exhibit 1 to Exhibit 4, more details on methodology) showcases more upbeat performance from export-reliant cities: 1) transaction: under web-registration metrics, the most export-reliant cities outperformed in primary (+26% wow in aggregated volume vs. flattish for rest cities) but lagged peers in seconda ...

Core Viewpoint - Goldman Sachs has adjusted its forecasts for the real estate sector and covered developers due to the immediate impact of tariff measures on employment and household income, delaying the stabilization of housing prices in first- and second-tier cities to mid-2026 [2][4]. Group 1: Market Forecast Adjustments - The forecast for total housing sales volume in 2025E-2026E is expected to drop to levels comparable to 2010-2011 and 2014, with primary market GFA sold projected at 894 million sqm in 2025E, down from previous estimates [3][11]. - Property sales in RMB trillion are forecasted to decline from 11.7 in 2023 to 8.4 in 2025E, reflecting a year-on-year decrease of 13% [3][11]. - Average selling prices (ASP) in the primary market are expected to decrease by 5% in 2025E and 3% in 2026E, stabilizing by the end of 2026E [3][11]. Group 2: Secondary Market Insights - The secondary market is anticipated to face significant pressure, with sales volume expected to decline by an average of 13% for 2025-2027, driven by widening bid-ask spreads and deteriorating supply quality [4][15]. - The average ASP in the secondary market is projected to decrease by 7% in 2025E and 4% in 2026E, reflecting weakened demand-supply dynamics [17][21]. - The turnover rate in the secondary market is estimated to drop by 0.3 percentage points nationwide from 2024 to 2026E, indicating a contraction in market activity [16][20]. Group 3: Developer Performance and Strategy - Goldman Sachs has lowered the core EPS forecasts for covered developers by 4%-6% for 2025-2027, reflecting pressures from sales scale, profit margins, and land reserve quality [4][55]. - Developers are increasingly focusing on land banking in core cities, with over 80% of total land acquisition value in 2024 concentrated in the top-10 cities, indicating a strategic shift towards higher-quality land [40][54]. - The average gross profit margin (GPM) for new acquisitions in 1Q25 is estimated to show a 7 percentage point improvement compared to previous reported figures, suggesting a potential recovery in profitability for developers [51][55].

Investment Rating - The report rates the China Property sector as a "Buy" for a 2-year horizon, indicating a good time to accumulate due to improving return on equity (ROE) and expected strong sales in June [1][13]. Core Insights - The report highlights a two-year trend of improving ROE driven by asset turnover and pricing, with expectations for strong sales in June due to increased new launches in key cities [1][2]. - It notes that the top-10 cities are stabilizing with improved inventory months and less downside price risk, while earnings for 2025 are expected to be lackluster, marking the sector's peak valuation at distressed profit levels [1][4]. - The report emphasizes supportive government policies aimed at stabilizing the property market and boosting consumption, which are expected to positively impact asset prices [1][6]. Summary by Sections New Home Sales - New home sales in April showed a moderation due to supply shortages and trade dispute concerns, with a weekly average of 19.3k units sold across 34 key cities, reflecting a 24% month-over-month decline [2]. - Strong sales are anticipated in June, potentially showing positive year-over-year growth in the top 10 cities due to active replenishments [2]. Secondary Sales - Secondary sales remained robust in the top 10 cities, with an average weekly volume of approximately 30k units in mid-April, marking an 18% year-over-year increase [3]. - The National Bureau of Statistics (NBS) secondary price index showed a slight increase of 0.3% month-over-month in tier-1 cities, indicating a potential recovery in household confidence [3]. Land Purchases - Land acquisition by listed firms surged by 122% year-over-year in Q1 2025, with top-100 firms increasing land purchases by 42% [4][8]. - The competition for land has led to price hikes in tier-1 and key tier-2 cities, with major players like COLI and CR Land being the top purchasers [4]. Management Changes - The report notes significant management changes in mixed ownership firms since 2024, aimed at enhancing shareholder value and optimizing management efficiency [5]. Government Support - The State Council has expressed a supportive tone towards stabilizing the property market, with Premier Li emphasizing the need for stable employment and consumption [6].