Summary of the Conference Call on Shanghai's Housing Trade-In Program Industry Overview - **Industry**: Real Estate in China, specifically focusing on Shanghai's housing market - **Key Program**: New pilot secondary housing units trade-in program launched in Shanghai on February 2nd, 2026, aimed at supporting upgrade demand and stabilizing the housing market [1] Core Points and Arguments 1. **Program Launch and Scope**: - The trade-in program is part of a broader initiative that has seen similar programs launched in over 150 municipalities since 2024 [1] - The Shanghai program is noted to be more practical and effective compared to previous initiatives [1][7] 2. **Policy Support and Market Dynamics**: - Central-level policy support for the housing market has been muted over the past year, leading to divergent market performances at the city level [2] - The Shanghai program is expected to reinforce price stabilization in the mass-market segment, which constitutes 35%-47% of secondary transaction volume in pilot districts [2][7] 3. **Targeted Property Characteristics**: - The program targets secondary properties with small unit sizes (e.g., below GFA 70 sqm) and moderate prices (e.g., ≤Rmb 4 million/unit) [6][10] - Eligible properties account for approximately 35-47% of secondary-market transactions in the pilot districts [19][22] 4. **Impact on Rental Market**: - The program aims to address the structurally under-supplied rental market in Shanghai, particularly in core areas [2][35] - The share of rental population in Jing'An and Xuhui is below the city-wide average of nearly 40%, indicating a need for affordable rental housing [35] 5. **Financing and Execution**: - Financing support is provided by China Construction Bank, with execution handled by designated district-level state-owned enterprises (SOEs) [6][10] - The program is designed to facilitate easier capital recycling and improve liquidity in the housing market [21][36] 6. **Future Steps and Recommendations**: - There is potential for cross-district trade-in options or multiple-to-one trade-in arrangements to further stimulate demand and improve market dynamics [2][45] - The significant price and size gaps between new and secondary homes highlight the need for policy adjustments to allow for more flexible trading options [51] Additional Important Insights - **Market Resilience**: The mass-market segment has shown resilience with milder price declines compared to the broader market, indicating a potential for recovery [20][25] - **Rental Yield Trends**: Residential rental yields in Shanghai have surpassed the 10-year treasury yield since the second half of 2025, suggesting a favorable environment for rental investments [36][46] - **Structural Challenges**: Despite the introduction of affordable rental housing schemes, there remains a significant mismatch in rental supply, particularly for units priced below Rmb 3,000 per month [35][41] This summary encapsulates the key points discussed in the conference call regarding Shanghai's housing trade-in program, highlighting its objectives, expected impacts, and the broader context of the real estate market in China.

Summary of Key Points from the Conference Call Industry Overview - **China Residential Market**: Developers are increasingly negative due to accelerated price declines, leading to margin and earnings pressure in 2025 and 2026. BEKE anticipates a 30% YoY decline in existing home GTV in Q4 2025 and a 13% and 6% decline in existing and new home transaction GTV in 2026 respectively [2][19]. - **Hong Kong Residential Market**: Developers report a strong recovery in transaction volume driven by rate cuts, rising rental demand, and increased investment from mainland Chinese buyers. There is potential for gradual price increases in new project launches [3]. - **Retail Sector**: High-end malls in China and Hong Kong are experiencing better momentum in 2H25, attributed to positive wealth effects from stock markets and rising gold prices. However, mass market retail remains challenging due to consumption downgrades and e-commerce penetration [4]. - **Office Market in Hong Kong**: There are signs of recovery in the Central office market, driven by increased leasing inquiries from the financial sector and IPO-related services [5]. Company-Specific Insights - **CR Land**: Reported a 17% YoY decline in contract sales gross value to Rmb170bn and expects downward pressure on earnings in 2025 due to lack of one-off gains [8]. - **COLI**: Experienced a 21% YoY decline in contract sales gross value to Rmb189bn, with expectations of launching large projects to mitigate sales decline [9]. - **Greentown China**: Reported a 6% YoY decline in contract sales to Rmb120bn, with expectations of slight profit in 2025 but continued pressure from vintage inventory [10]. - **Poly Developments**: Focused on liquidity and destocking, with a significant portion of sales coming from vintage inventory [11]. - **CR Mixc**: Forecasted double-digit core net profit growth for FY2025, supported by strong same-store sales growth [15]. - **Beike (KE Holdings)**: Expects a 30% YoY decline in GTV for existing homes in Q4 2025, but maintains a guidance of Rmb7bn adjusted operating profit for 2026 [19][20]. Market Preferences - **Stock Preferences**: Preference for HK developers like Henderson and Sino due to the bottoming of the HK residential market, and for retail properties like CR Mixc and Swire Properties due to recovery in mainland China retail [6]. Risks and Valuation - **Valuation Methods**: P/BV methods are used for mainland China property developers, while discount to NAV is used for Hong Kong developers and landlords [31]. - **Key Risks**: For Hong Kong, risks include weakening macroeconomic conditions and increased housing supply. For mainland China, risks involve government policies restricting demand and tight financing for developers [32]. Additional Insights - **Market Sentiment**: There is a cautious optimism among developers in Hong Kong regarding sales momentum and potential price increases, while mainland developers face significant challenges due to declining sales and margins [3][4][5][8][9][10][11].

Investment Rating - The report upgrades Henderson Land to "Overweight" (OW) from "Equal Weight" (EW) [8][14] - SHKP remains rated as "Overweight" (OW) [5][14] - Sino Land is downgraded to "Equal Weight" (EW) [14] - NWD and Wharf are rated as "Underweight" (UW) [5][14] Core Insights - Hong Kong's residential property market is showing signs of recovery after a seven-year decline, with prices down 30% from their peak in August 2021 [4][15] - The report anticipates a potential upcycle lasting 4-5 years, driven by structural under-supply, population growth, and favorable market conditions [4][15] - The CCL index has declined 30% since August 2021, with current affordability levels reverting to 2011 levels [4][15] - Developers are trading at a 60% discount to NAV, with strong balance sheets and dividend yields of 6-7%, indicating significant upside potential [4][15] Summary by Sections Market Performance - Year-to-date, Hong Kong home prices have declined by 1.5%, which is better than the expected -5% for the first half of 2025 [3][10] - The Hang Seng Index has increased by 21% year-to-date, positively impacting market sentiment [3][10] Supply and Demand Dynamics - The market is structurally under-supplied, with land sales collapsing in recent years and an increase in population and migrants from mainland China [4][10] - The removal of additional stamp duty since February 2024 has further stimulated demand from non-local buyers [3][39] Stock Selection - Preferred stocks include SHKP (OW), Henderson (OW), and Kerry (EW) due to their strong market positions and benefits from lower HIBOR [5][10] - NWD (UW) and Wharf (UW) are viewed with caution due to liquidity concerns and unattractive valuations [5][10] Price Forecasts - The report forecasts a flat year-over-year change in property prices for 2025, with a slight increase of 2% expected in the second half [29][30] - The effective mortgage rate has decreased to approximately 2%, benefiting the residential market and easing financing pressures for developers [53][59] Key Drivers of Recovery - Factors supporting the recovery include low HIBOR rates, population growth, and increased contributions from mainland buyers [20][39] - The report highlights that the current discount to NAV of 60% is not fully priced in, suggesting potential upside of 50% if valuations normalize [19][23]

Summary of the Conference Call on Hong Kong and Mainland China Real Estate Industry Overview - **Industry**: Real Estate in Hong Kong and Mainland China - **Date**: 28 February 2025 Key Points and Arguments Hong Kong Real Estate 1. **New World Development**: Released a new price list for 41 units in State Pavilia, priced between HKD 7.8 million to HKD 14.3 million per unit, translating to HKD 21,807 to HKD 32,333 per square foot after discount [5] 2. **Centa-Valuation Index (CVI)**: Declined by 4.37 percentage points week-over-week to 36.89 points, indicating potential downward pressure on property prices if it does not recover above 40 points [6] 3. **Coasto Project**: Wang On Properties reported 1,100 indications of interest for 60 units, resulting in a 17x oversubscription, with unit prices ranging from HKD 3.8 million to HKD 7.2 million [7] 4. **Sun Hung Kai Properties**: Noted signs of business improvement in the first half of the year, including faster property sales and landbank replenishment, suggesting the end of the earnings decline cycle [4] Mainland China Real Estate 1. **Land Sales in Shanghai**: The city plans to sell 13 sites with a total reserve price of RMB 11.3 billion, with significant sites in Minhang and Qingpu districts [8] 2. **CR Land Acquisition**: Acquired a plot in Beijing's Shunyi District for RMB 6 billion, with a plot ratio of 1.0 and an average value of approximately RMB 35,000 per square meter [9] 3. **Logan Group**: Over 80.8% of offshore creditors approved a debt restructuring plan, indicating progress in financial recovery [10] Market Valuation and Performance 1. **Valuation Summary**: Various Hong Kong property developers have target prices significantly above current market prices, indicating potential upside. For example, CK Asset has a target price of HKD 44.60 compared to a current price of HKD 33.90 [12] 2. **Share Price Performance**: The report includes a detailed performance analysis of various companies, showing a mixed performance over different time frames, with some companies like New World Development experiencing significant declines [21] Additional Insights 1. **Rental Pipelines**: Solid rental pipelines are expected to provide visibility on dividend outlooks for companies like Sun Hung Kai Properties [4] 2. **Market Trends**: The report highlights a cumulative decline in the CVI over the past three weeks, suggesting a cautious outlook for property prices in the near term [6] Conclusion The conference call provided a comprehensive overview of the current state of the real estate market in Hong Kong and Mainland China, highlighting both challenges and opportunities. Key players are showing signs of recovery, but market indicators suggest caution moving forward.