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].