Core Insights - The report maintains an "Outperform" rating for the real estate sector, indicating a belief in potential recovery despite ongoing challenges in the market [4] - The real estate market is expected to stabilize at low levels in 2026, with a projected sales volume of CNY 7.6 trillion, reflecting a decrease of 10.9% year-on-year [2][3] - The report emphasizes the importance of income confidence as a key driver for housing prices, suggesting that a confidence index above 50 is necessary for sustained price stability [1][46] Market Overview - In 2025, the real estate market faced significant pressure, with new home sales declining by 13% year-on-year in Q3, marking a historical low [1][11] - The inventory pressure for new homes has increased compared to the period before the "924" policy, with the average de-stocking cycle extending to 23 months in major cities [11][14] - The second-hand housing market is also under pressure, with high listing volumes making it difficult for prices to stabilize [20][33] 2026 Outlook - The report forecasts a slight narrowing of sales declines in 2026, with new construction expected to grow by over 20% [2][3] - Investment in real estate is projected to decrease by 9%, amounting to CNY 7.5 trillion, due to ongoing challenges in the market [2][3] Investment Recommendations - The report suggests a strategy of waiting for market stabilization while focusing on structural opportunities within the sector [2][3] - Specific companies are highlighted for potential excess returns, including those with light historical burdens and conservative price-to-book ratios, such as China Jinmao and China Overseas Development [2][3] Key Company Earnings Forecasts - China Jinmao is projected to have an EPS of CNY 0.08 for both 2025 and 2026, with a PE ratio of 15.4 [3] - China Overseas Development is expected to have an EPS of CNY 1.41 in 2025 and CNY 1.43 in 2026, with a PE ratio of 8.5 and 8.4 respectively [3] - Other recommended companies include China Overseas Hongyang Group, China Merchants Shekou, China Resources Land, and Longfor Group, all rated "Outperform" [3] Policy Environment - The report notes that existing policy frameworks have limited room for significant adjustments, with most measures being minor tweaks rather than substantial changes [38] - Recent policy announcements have included adjustments to housing purchase restrictions in major cities, but their impact on sales is expected to be limited [38][40]

Investment Rating - The report maintains an "Outperform" rating for the real estate industry [4][36]. Core Viewpoints - The stock market has risen by 53% while housing prices have decreased by 4.4% since the "924" policy announcement, indicating a divergence between the two markets post-March 2025 [1][11]. - The real estate market lacks new logic to support rising expectations, leading to a downward trend in housing prices while the stock market continues to rise [1][28]. - Short-term stabilization of housing prices relies on persuasive narratives, while medium-term recovery is dependent on income improvements [2][31]. Summary by Sections Market Trends - The report highlights a significant divergence between the stock market and housing prices after March 2025, with the stock market continuing to rise while housing prices decline [1][11]. - The report notes that the housing market's basic fundamentals have not changed significantly, and the price movements are more influenced by valuation rather than fundamental changes [1][22]. Investment Recommendations - The report suggests capturing short-term trading opportunities before a potential price stabilization, recommending companies such as China Jinmao, China Overseas Grand Oceans Group, China Overseas Development, China Resources Land, and China Merchants Shekou [2][36]. Company Profit Forecasts and Ratings - The report provides profit forecasts and investment ratings for several companies, all rated as "Outperform": - China Jinmao (0817.HK): Target price 1.50 CNY, 2025E EPS 0.14 CNY, PE 10.6 [3]. - China Overseas Grand Oceans Group (0081.HK): Target price 2.46 CNY, 2025E EPS 0.50 CNY, PE 4.9 [3]. - China Overseas Development (0688.HK): Target price 13.79 CNY, 2025E EPS 2.34 CNY, PE 5.9 [3]. - China Resources Land (1109.HK): Target price 30.22 CNY, 2025E EPS 4.18 CNY, PE 7.2 [3]. - China Merchants Shekou (001979.SZ): Target price 9.39 CNY, 2025E EPS 0.72 CNY, PE 13.1 [3].