China Property More policy support from MOF_takeaways from expert call

Summary of China Property Sector Conference Call Industry Overview - The conference focused on the China Property sector, discussing recent policy changes and market dynamics. Key Policies Announced 1. Special Local Government Bonds (LGBs) for Idle Land: - Local governments can raise special LGBs to purchase idle land, defined as land not developed after two years or construction halted for over a year with minimal progress. - Estimated idle land in China is approximately 4.9 billion sqm GFA, with an additional 1 billion sqm GFA potentially qualifying for repurchase. - The total cost to buy back all idle land could reach ~Rmb20 trillion, but local governments are expected to be selective in purchases due to market demand concerns [2][5][6]. 2. Support for Unsold Homes: - The government will allow the use of special LGBs and affordable housing subsidy funds to purchase unsold homes, enhancing local governments' financial incentives to buy these properties. - Current financial returns on unsold homes are unattractive (~2% rental yield vs. 2.9% funding cost), but special LGBs could lower funding costs to 2.2-2.3% [5][6]. 3. Tax Rate Optimization: - A new policy aims to eliminate the distinction between ordinary and non-ordinary housing for VAT and land appreciation tax (LAT), potentially lowering transaction costs and encouraging market turnover. - This change is expected to support developers by reducing tax burdens on higher-margin projects [6][7]. Market Dynamics and Sales Performance - Golden Week Sales: - Strong growth in primary sales in tier-1 cities, with daily averages increasing by 50% to 275% compared to 3Q24. - Secondary market sales also saw growth of 12-138%. The increase is attributed to aggressive discounts for first-home buyers [7][11]. - Price Trends: - Recent price hikes are viewed as marketing tactics rather than genuine market recovery, with developers remaining conservative in pricing strategies. - Home price stabilization is anticipated to take time, potentially aligning with rental yields and mortgage rates [8][11][17]. - Future Demand-Side Easing: - More demand-side easing measures are expected in January 2025 if home price corrections worsen. This may include the removal of home purchase restrictions in tier-1 cities and the establishment of a stabilization fund [8][9][18]. Long-term Outlook - Projected sales volume for 2024 is around 900 million sqm GFA, with a normalized long-term level estimated at 700-800 million sqm GFA. - The market is expected to stabilize as confidence in income, employment, and home prices improves [9][22]. Investment Preferences - Preference for state-owned enterprises (SOEs) with undemanding valuations, such as CR Land, CR Mixc, and Poly PS. - Distressed companies like Sunac and Shimao are expected to remain volatile due to policy expectations [1][2]. Additional Insights - Concerns among home buyers include fears of falling prices, job security, and high mortgage payments, which continue to impact market sentiment [13][18]. - The government is likely to set up a real estate stabilization fund, requiring approximately Rmb4-5 trillion to effectively manage unsold units and unfinished buildings [19][20]. This summary encapsulates the key points discussed during the conference call, highlighting the current state and future outlook of the China Property sector.