Group 1 - The core view of the report indicates that the real estate industry is expected to outperform the market, with a focus on the challenges faced in 2025 and the need for policy adjustments to stabilize housing prices [1][4] - In 2025, new home sales saw a significant decline, with a year-on-year drop of 13% in Q3, marking the lowest level since 2019 [1][11] - The report emphasizes that income confidence is crucial for the mid-term trend of housing prices, requiring the income confidence index to rise above 50 for sustained stability in prices [1][46] Group 2 - The outlook for 2026 suggests a slight narrowing of sales declines, with expected sales amounting to 7.6 trillion yuan, a decrease of 10.9%, and a sales area of 840 million square meters, down 6.8% [2] - New construction is projected to grow significantly by over 20%, while completions are expected to decline by 20% due to insufficient inventory [2][18] - Investment in the sector is anticipated to benefit from improved construction activity, estimated at 7.5 trillion yuan, down 9% [2] Group 3 - Investment recommendations include waiting for market stabilization and focusing on structural opportunities, with specific companies identified as potential outperformers based on their financial health and market positioning [2][3] - Companies recommended for investment include China Jinmao, China Overseas Development, and China Overseas Grand Oceans Group, which are expected to contribute excess returns due to their strong fundamentals [2][3] - The report highlights the importance of selecting stocks with low historical burdens and those benefiting from favorable market conditions, such as lower interest rates [2][3]

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].