Core Viewpoint - The Chinese real estate industry is expected to reach a turning point around 2026 after undergoing a cyclical adjustment, with net rental returns and mortgage rates projected to converge by November 2026 under the assumption of stable mortgage rates and rents [1][2]. Group 1: Market Observations - The three key market focus areas identified for the real estate sector in 2026 include changes in second-hand housing inventory, policy transitions following the expiration of the "Financial 16 Measures," and the trajectory of debt extension events for certain real estate companies [1]. - Current challenges persist in the second-hand housing market, with a net increase of 12% in the number of second-hand homes listed across 49 cities by November 2025 compared to the end of 2024, while transaction volumes have mostly shown negative year-on-year growth [1]. - The imbalance in supply and demand has put downward pressure on prices, with the second-hand residential price index in 70 cities experiencing a month-on-month decline of 0.7% in November 2025, a widening drop compared to mid-year [1]. Group 2: Rental Returns and Mortgage Rates - The narrowing difference between net rental return rates and mortgage rates is seen as a key factor in stabilizing demand, with the current difference at approximately 60 basis points [2]. - Assuming stable rental levels and mortgage rates, it is projected that by November 2026, the net rental return and mortgage rates will converge, influenced by the linear extrapolation of average monthly price declines since 2025 [2]. - The capital market may respond similarly to the U.S. experience in 2009, where significant excess returns in real estate stocks were observed once the difference between net rental returns and mortgage rates turned positive, indicating that the approach of the equilibrium point could lead to preemptive pricing in the capital market for second-hand housing inventory [2].

Core Viewpoint - The current issues in the real estate market are characterized by "volume" for new homes and "price" for second-hand homes, with new home sales declining due to structural changes in transactions as second-hand homes increasingly replace new home sales [2][12][16]. New Home Market - The new home market is experiencing a continuous decline in transaction volume, with sales area dropping by 5.6% year-on-year from January to September, and a significant 11.4% decline in September compared to the previous year [4]. - The sales area of the top 100 real estate companies fell by 20.1% year-on-year in the first nine months, with September showing a year-on-year decline of 14.7%, an improvement from August's 31.3% drop [4]. - New home prices continue to rise, with a 2.7% year-on-year increase in September, and a slight 0.1% month-on-month growth. Price trends vary significantly between first/second-tier cities and third/fourth-tier cities [4][12]. Second-Hand Home Market - In contrast, the second-hand home market has seen a volume increase but a price decline, with transaction volume in 18 sample cities growing by 17.1% year-on-year from January to September, and a notable 29.7% increase in September compared to the previous year [8]. - Second-hand home prices have been under pressure, with a 0.7% month-on-month decline in September, marking the 41st consecutive month of price drops, and a year-on-year decrease of 7.4% [8]. - The price decline is most pronounced in second-tier cities, with September showing a month-on-month drop of 0.9% and a year-on-year decline of 8.3% [8]. Market Dynamics - The total transaction area for new and second-hand homes has stabilized around 15 billion square meters since 2022, following a significant drop from 19.3 billion square meters in 2021 [12][14]. - The share of second-hand home transactions has increased from 19% in 2021 to an expected 46% in 2024, with projections suggesting it may reach around 50% by 2025 [17]. - The market is expected to stabilize as the pressure from new home sales diminishes and the inventory of new homes continues to decrease, with a monthly reduction of approximately 20 million square meters [17][19]. Future Outlook - The new home sales area is projected to remain at 7.5 billion square meters by 2025, with new construction and completion areas declining to 6 billion and 5 billion square meters, respectively [17]. - The second-hand home market is entering a "de-inventory" phase, with a decrease in new listings since July, indicating a shift towards a balance in supply and demand [19].