China Property_ Long Way Home; New Constraints in the Path to Stabilize in ‘25E

Summary of China Property Market Conference Call Industry Overview - The conference call focuses on the China Property market, highlighting the ongoing challenges and structural changes expected in 2025 and beyond. Key Points 1. Structural Decline in Real Estate Investment (REI) - A structural decline in REI is anticipated, with projections for 2025E showing REI at Rmb8.9 trillion, a 10.5% year-over-year decline from Rmb9.9 trillion in 2024E, which exceeds sales of Rmb9 trillion [71][73] - The gap between national transactions and REI is expected to be negative, indicating a significant overhang in the market [71] 2. New Home Supply at Historical Lows - New home supply is projected to be at a 20-year low, with land sales and new starts down 28% year-over-year in 2024E [20] - The risk-reward for new builds in Tier 2, 3, and 4 cities is deemed unjustified until home prices stabilize [2][35] 3. Completion and Sales Trends - GFA (Gross Floor Area) completions are expected to decline by 25% in 2024E, with a milder decline of 13% in 2025E [46][48] - Total residential sales are forecasted to be Rmb7.4 trillion in 2025E, reflecting a 10% year-over-year decline [18] 4. Policy Impact on Destocking - Renewals of 1 million units in 297 cities are expected to reduce existing supply and boost one-off demand, potentially clearing 6% of Tier 1 and 2 inventory [3][54] - A repurchase of idle land worth Rmb300 billion could also contribute to destocking efforts [56] 5. Challenges to Price Stabilization - Local fiscal deficits and high reliance on household income pose significant hurdles to price stabilization [6][21] - A 1% decline in home prices could negate Rmb3 trillion in stimulus efforts [6] 6. Secondary Market Dynamics - The secondary market accounts for 61% of total sales in 36 cities, with prices critical for demand-led reflation [7][26] - Secondary sales are expected to increase by 1% year-over-year to Rmb7 trillion in 2025E, despite total new and secondary sales declining by 5% year-over-year [7][27] 7. Inventory Levels - New home inventory is estimated to be 20 months for Tier 2 cities and 29 months for Tier 3 cities by the end of 2025E [66] - The overall inventory is 17% below the peak, indicating ongoing destocking efforts [66] 8. Economic Indicators - The property sector's reliance on household income is highlighted, with property accounting for 66% of household assets while households earned only 27% of total income in 2023 [6] 9. Land Sales and Construction Trends - Land sales are projected to be at a 17-year low, with a 28% decline in land area acquired in 2024E [13][20] - New starts are expected to return to levels not seen since 2003/2004, reflecting a significant contraction in the market [31] 10. Financial Health of Developers - Despite deleveraging efforts, net gearing for listed property names has increased due to equity shrinkage from asset write-offs [41] - The willingness and ability of developers to acquire new land remain low, impacting future supply [35] Conclusion - The China Property market is facing significant challenges, including declining investment, low new home supply, and hurdles to price stabilization. The ongoing policy measures aim to address these issues, but the structural decline in demand and supply dynamics will likely continue to impact the market in the near term.