Sales bottomed out as scheduled in March 2022, with a further year-on-year decline. However, we note that the possibility of the introduction of the policy is further enhanced, and the Zhengzhou policy "proofing" has achieved good results. Mortgage rates are falling rapidly. We believe that March 2022 will be the bottom of the market, and the year-on-year decline in commercial housing sales will begin to narrow in the second quarter.

▍Sales bottomed out in March 2022.

In the first 20 days of March, the number of new home sales in representative cities decreased by 46.8% compared with the same period last year, and the number of second-hand housing sales decreased by 37.3% compared with the same period last year. Compared with February, the market continued to bottom out. However, the company did not significantly expand the rate of price reduction. We believe that on the one hand, this is related to the fact that profit margins have been squeezed to much lower than the industry's historical average, and on the other hand, it is also related to the fact that sales funds can not be fully returned to corporate headquarters under pre-sale supervision.

▍Zhengzhou policy is beginning to bear fruit.

Zhengzhou is the first city to introduce a systematic demand support policy, and by late March, the Zhengzhou market began to become active. Recently, a CCTV reporter found that the number of houses in the core area of Zhengzhou increased significantly, while house prices did not rise much. China Real Estate News published, "Zhengzhou property market survey: more people are looking at houses, confidence is also on the way to recovery." Authoritative media reports show that there are not only signs of recovery in Zhengzhou property market, but also official public opinion affirms the result of this recovery. We believe that the demand support scheme similar to Zhengzhou will have the conditions to replicate in more areas and is expected to promote the recovery of the market.

▍With the accumulation of financial risks to a certain extent, the policy can be accelerated.

Compared with the risk of delivery, the risk of income from land sales and the risk of shrinking residents' spending power, we think that the risk of credit deterioration in the real estate industry chain should be paid more attention in the short term. We believe that with financial policy as the main starting point, the policy of underpinning demand in the next 1-2 months will continue to be introduced, which will also be enough to drive the market to pick up.

▍Mortgage interest rates have entered a rapid decline.

According to the statistics of KE Holdings Inc. Research Institute, the first-home mortgage rate has fallen by 40BP from its peak, but it is still more than 70 BP points higher than the 4.6% LPR level. We believe that commercial banks will continue to increase their mortgage investment in order to win more market share, and it is expected that the average mortgage interest rate will still have 50-80 BP reduction space in the short term. From historical experience, the decline in mortgage rates is expected to boost sales recovery.

▍Risk Tips:

The risk of debt rollover of some enterprises and the risk of continuous decline of profitability of some enterprises. The introduction of the policy is too slow and there is a risk of further turmoil in the property market.

▍Investment advice:

From historical experience, real estate stocks do not fluctuate with the change of basic face value, but rise and fall with the expected rise and fall of policy loosening. It now seems that policy measures are sufficient to push fundamentals to bottom out and rebound, and the willingness to intervene under credit risk has also reached its peak. We believe that the period from March to April 2022 is an important time to continue to overallocate blue chips in real estate. We are optimistic about Poly Development, Jindi Group, Vanke A, Investment Shekou, Midea Real Estate, Longfor Group, China Resources Land, Greentown China and Binjiang Group and so on.