We think the recent buying frenzy in China real estate names was induced by incremental policy easing and investors' reignited sentiment, rather than a rebound in durable home demand.
While policy relief has lifted home sales in select key cities, this may be short-lived as home price weakness will likely persist amid oversupply. We also believe that new directives will pose a limited impact on less wealthy cities, given their already loosened homebuying curbs. As such, we reiterate our view that nationwide new home sales value and prices should stabilize in mid-2025 as excess inventory is absorbed, and maintain our fair value estimates for our China property sector coverage.
Although the share price rally has led to overpricing on companies such as China Jinmao and Vanke, we still see valuation upside for large state-owned developers including China Overseas Land & Development and China Resources Land. Both names remain our preferred sector picks given their better asset quality and stronger balance sheet.
The additional policy tailwinds mainly comprise: 1) reducing the first- and second-home down payment ratio to 15%-20% across China; 2) removing buying restrictions in top cities like Guangzhou; and 3) raising the central bank's funding mix for inventory destocking to 100% from 60%.
These measures boosted new home sales by over 20% year on year in Tier 1 and Tier 2 cities during the national holiday in October 2024, as per the China Index Academy. That said, the longevity of demand recovery remains clouded by subdued home prices, and lower-tier cities require longer cycles to see meaningful improvement, in our view.
For home supply, despite a slow start in unsold unit absorption, we expect local governments to expedite the buying process in the coming months. This will be driven by more clarity in funding sources and developers' acceptance of further deep discounts to project values. Consequently, we anticipate China's home inventory to moderate from 2025 onward.
