Summary of Conference Call on China Property Market Industry Overview - The conference call focuses on the **China Property** market, discussing the ongoing downcycle and its implications for sales and rental prices. Key Points and Arguments Market Downcycle - Expectation of another **two years of downcycle** in the property market, with sales projected to decline by **10% in 2026** and **5% in 2027** [1][53] - Housing price expectations have fundamentally changed, with a notable shift towards renting due to lower rental yields compared to mortgage rates [1][6] Rental Market Dynamics - In **9M2025**, rental transaction units in Shanghai increased by **12% YoY**, but rental prices in four tier 1 cities declined by **3% YoY** as of October 2025 [2][8] - The increase in rental transactions suggests a growing rental supply, attributed to: 1. Rising social rental housing supply in tier 1 cities (400k-600k units per city) [2][34] 2. Conversion of secondary listings for sale to rental due to difficulties in selling properties [2][18] 3. Supply from vacant properties, with an estimated **18.8% vacancy rate** nationwide [2][28] Mortgage and Cash Flow Analysis - Monthly rental expense for a property valued at **RMB 1 million** is **RMB 1,508**, while the mortgage payment is **RMB 2,562**, indicating a preference for renting over buying [3][14] - A **40bps reduction** in mortgage rates by end-2026E could necessitate a **38% decline** in property prices for cash flow parity between renting and buying [3][7] Policy Responses and Risks - Potential policy measures to stabilize property prices include: 1. Suspension of social housing supply (unlikely due to the 15th Five-Year Plan) [4] 2. Interest rate cuts (over 100bps) which may negatively impact banks' net interest margins [4] - A rise in mortgage default rates poses a downside risk, potentially leading to more foreclosure sales and further price declines [4] Sales Forecasts - Revised national residential sales value forecast down by **3-13% for 2025-26E** [1][53] - Anticipated **10% decline** in national property sales in GFA/value terms for 2026E and another **5% in 2027E** [1][53] - Top 100 developers' contract sales decreased by **41% YoY** in October 2025, indicating ongoing market weakness [53] Social Rental Housing Impact - Social rental housing supply is expected to continue to compress rental prices and dilute demand for private residential housing [33][35] - The government plans to supply **8.7 million units** of social rental housing, which could cover **13-16%** of households renting a house in tier 1 cities [34][40] Inventory and New Starts - Property new starts are expected to decrease by **10% in 2026** and **5% in 2027** after a **19% decline in 2025** [54][55] - The inventory level may return to average levels by mid-2027, considering the latest sales and new starts forecast [3][53] Additional Important Insights - The shift in homebuyer preferences towards renting is driven by the **low rental yields** (1.81% in tier 1 cities) compared to mortgage rates (3.07%) [7][15] - The ongoing downcycle has led to a **35% drop** in the Centaline secondary price index in tier 1 cities since its peak [6] - The **social rental housing** supply peaked in 2022 but is expected to decline in 2026-27E, potentially affecting rental dynamics [33][36] This summary encapsulates the critical insights from the conference call regarding the current state and future outlook of the China property market, highlighting the challenges and shifts in consumer behavior.

Market Sentiment - The Hong Kong residential property market is showing signs of mending investor sentiment, although analysts remain cautious about a full recovery due to geopolitical tensions and economic uncertainties [1] - Investors accounted for 20% of the market's total transactions in 2025, with certain districts near universities potentially having a higher proportion of investor activity [1] Rental Yields - The average gross rental yield for mass residential units in Hong Kong is 3.7%, which is appealing to mainland buyers [2] - Hong Kong's residential rents increased in August, with the rental index rising by 1.12%, marking the largest increment in 14 months, bringing it close to the record high of 200.1 recorded in August 2019 [6] Interest Rates and Economic Factors - Investor interest is being driven by expectations of further interest rate cuts and potential rent increases, with HSBC offering a fixed-rate mortgage plan at 2.73% per annum [3] - Following the US Federal Reserve's easing of policy rates, the Hong Kong Monetary Authority reduced the prime lending rates by 12.5 basis points on September 18 [4] Market Challenges - The Hong Kong economy faces challenges such as weak consumption, high vacancy rates in commercial buildings, and an oversupply of private residential units [5] - While rental yields may not be the most attractive incentive, lower residential flat prices could present a good entry point for investors seeking capital gains [6]