China Property & Property Management_2025 outlook_ destocking to persist

Summary of the Conference Call on China Property & Property Management Industry Overview - Industry: China Property & Property Management - Outlook for 2025: Destocking to persist with five key themes identified for the year [2][9] Key Themes for 2025 1. Existing Homes' Share Gains: The trend of existing homes gaining market share from new homes is expected to continue, driven by buyer concerns over project quality and completion risks [2][19] 2. Rising Importance of Rental Market: The rental market is becoming increasingly significant, with a shift from buying to renting properties, impacting rental prices and government inventory buyback programs [2][24][26] 3. Challenges for Luxury Malls: Luxury malls are anticipated to face ongoing challenges due to a mismatch between supply and demand, with luxury retail sales declining by approximately 10% in 2024 [2][29][31] 4. C-REITs as a Rising Asset Class: The decline in interest rates is expected to benefit C-REITs, with a notable increase in their average unit price by 12% in 2024 [2][33][37] 5. Diminishing Policy Impact: The influence of government policies on the physical and stock markets is expected to decrease, with a focus shifting towards individual company fundamentals [2][3] Market Performance and Expectations - 2024 Performance: MSCI China Real Estate declined by 11%, underperforming MSCI China by 26 percentage points [3][14] - 2025 Expectations: Anticipated declines in the residential new home market with projected YoY declines of 10% in GFA sales and new starts, and a 10% decline in tier-1 cities' property prices [2][18] Stock Preferences - Preferred Stocks: BEKE and CR Land are favored due to their structural advantages in the current market environment [4] - Cautious Stance: A cautious outlook on developers and managers due to ongoing price and volume stabilization issues, with increased default risks highlighted [4] Valuation Metrics - Current Valuation: MSCI China Real Estate is trading at a forward PE of 8.4x and P/BV of 0.60x, compared to historical averages of 6.7x and 0.87x [5][9] Additional Insights - Secondary Market Growth: Secondary transactions increased to 47% of total transactions in 2024, up from 30% in 2022, indicating a shift in market dynamics [21] - Rental Yield vs. Mortgage Rates: Rental yields in tier-1 cities remain lower than mortgage rates, affecting investment decisions [25][26] - Luxury Market Outlook: Anticipated decline in domestic luxury spending by 8% YoY in 2025, with luxury brands expected to slow store expansions [30][31] Conclusion The conference call highlighted a challenging outlook for the China property market in 2025, with significant shifts towards existing home transactions and the rental market, alongside persistent challenges for luxury retail spaces. The anticipated decline in property prices and the evolving landscape of C-REITs present both risks and opportunities for investors in this sector.