Investment Rating - Industry view is rated as In-Line [9] Core Insights - Property sales and home prices are expected to continue declining in the third quarter due to high secondary inventory and weakening resident sentiment [1][2] - Quality state-owned enterprises (SOEs) with high visibility are recommended for investment, with CR Land identified as a top pick [1][2] Monthly Property Sales - Home sales weakened further, with primary sales volume in 65 cities down 11% year-on-year and secondary sales volume in 33 cities down 5% year-on-year [3] - Year-to-date growth for primary sales is now at +0.1% year-on-year, while secondary sales are at +13% year-on-year for the first five months of 2025 [3] Property Prices - Housing prices are declining at an accelerated rate, with primary home prices in 70 cities dropping 4.1% year-on-year and secondary home prices down 6.3% year-on-year [4] - The decline in secondary prices for the top 10 cities is 5.4% year-on-year, while for the top 100 cities, it is 7.2% year-on-year [4] Secondary Market - Listing volume continues to increase, with secondary listing prices down 8.1% year-on-year [5] - New secondary listings increased by 6% year-on-year but decreased by 11% month-on-month due to seasonality [5] Inventory - Primary inventory levels in tracked cities remained stable at 23.4 months, with tier 1 cities decreasing slightly to 14.2 months [6] Land Market - Land sales in 300 cities decreased by 13.8% year-on-year in gross floor area, while the value increased by 17.8% year-on-year [7] - The year-to-date land sales decline in gross floor area is now at -6.4% year-on-year [7]

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 ...

Investment Rating - The report assigns a "Buy" rating to CRL, C&D, China Jinmao, and KE Holdings, indicating a positive outlook for these companies in the real estate sector [4][7][20]. Core Insights - The report emphasizes that more supportive property policies are expected to reinforce market recovery, particularly in tier-1 and tier-2 cities, driven by lower mortgage rates and successful policy implementations like property vouchers and home purchase subsidies [2][7]. - Site visits to various projects indicate a clear sign of market bottoming, with engaged sales teams and solid sell-through rates despite macro uncertainties [3][7]. - The report highlights a positive sentiment among prospective home buyers, who are financially capable but cautious about leveraging due to economic uncertainties [3]. Summary by Sections Market Dynamics - Centaline's Vice President believes additional policies will be introduced to support the recovery cycle, with a focus on urban renewal and inventory acquisition [2]. - Successful case studies, such as Xiamen, demonstrate the effectiveness of combined policy measures in stimulating demand [2]. Sales and Pricing Strategies - Developers are adopting unaggressive pricing strategies, which are facilitating solid project sell-through rates [3]. - The average downpayment ratio is reported at 40%, with first home mortgage rates at 3.15% and downpayment requirements at 15% [3]. Stock Recommendations - Preferred stocks include CRL (1109 HK, TP HKD36.30), C&D (1908 HK, TP HKD21.20), and China Jinmao (817 HK, TP HKD1.60), all rated "Buy" due to their resilience and strong pricing power [4][20]. - KE Holdings (BEKE US, TP USD26.30) is also highlighted for its market share gains in both primary and secondary markets [4][20].

Summary of the Conference Call Industry Overview - **Industry**: Real Estate in Mainland China and Hong Kong - **Key Focus**: Property sales trends, market indicators, and investment opportunities Mainland China Insights - **Sales Performance**: - 60-city primary sales registrations down 18% year-over-year (Y/Y) but showed a 17% week-over-week (W/W) increase due to month-end effects [4][6] - Compared to the 4-year average, sales improved from -71% to -60%, still weaker than the average decline of 45-55% in Q1 2025 [4][6] - **Leading Indicators**: - Centaline tier-1 cities' secondary asking price index slightly improved from 21.3 to 21.9, remaining near a 6-month low [4][6] - Centaline manager confidence index dropped from 51.0 to 50.6 [4][6] - Property agency web traffic index decreased by 26% Y/Y and 3% W/W [4][6] - **Market Sentiment**: - The sector experienced a 3% drop last week, underperforming the Hang Seng Index (HSI) which rose by 3% [4][6] - Suggested strategy: "the worse, the better," indicating potential tactical opportunities [4][6] Hong Kong Market Update - **Sales Performance**: - The first batch of Sierra Sea (318 units) sold out completely at launch, attributed to low lump sum and attractive pricing [4][6] - Secondary transactions in top 35 estates rose by 4% W/W [4][6] - Secondary home prices increased marginally by 0.01% W/W [4][6] - **Market Trends**: - HK Property rose by 4% last week, slightly outperforming the HSI [4][6] - Outperformers included Champion REIT and HK Land, both up 14% due to strategic disposals and buyback programs [4][6] - Caution advised on NWD and Wharf REIC, while preference is given to high dividend certainty names like Swire Prop and Link REIT [4][6] Investment Recommendations - **Buy on Dips**: - Focus on quality state-owned enterprises (SOEs) such as CR Land and CR Mixc, and companies with turnaround stories like Longfor and Jinmao [4][6] - **Price Adjustments**: - Expectation of a 5% correction in home prices in 2025 due to anticipated market weaknesses [4][6] Additional Insights - **Sales Data**: - Detailed sales data by tier and region indicates varying performance across different city tiers, with tier-1 cities showing more resilience compared to tier-3/4 cities [4][6] - **Future Launches**: - Upcoming projects and their expected sell-through rates are critical for gauging market recovery and investor sentiment [4][6] This summary encapsulates the key points from the conference call, highlighting the current state of the real estate market in Mainland China and Hong Kong, along with strategic investment insights.

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].