Source: Wall Street News
Real estate prices and new construction areas are likely to stabilize by June 2025.
Today, real estate stocks experienced a major rebound. As of press release, those listed in Hong Kong$CIFI HOLD GP (00884.HK)$,$SUNAC (01918.HK)$,$LONGFOR GROUP (00960.HK)$,$GREENTOWN CHINA (03900.HK)$Real estate agents and others all increased by more than 10%.
UBS Real Estate CEO John Lam (John Lam), who bravely downgraded Evergrande's rating to a sale in January 2021, has turned bullish on Chinese real estate agents.
Lin Zhenhong pointed out that under the support of factors such as 1) strong government policies, 2) China's leverage being lower than the current scenario in the US and Japan, and 3) supply reduction and demand may reverse next year, real estate supply and demand will reach a historical average in 2025, and real estate company stocks with heavy land storage will rise in 21 major cities.
After the real estate price stabilizes, demand will recover at the same time
Recently, during an interview in Hong Kong, Lam Chun-hung told the media:
We are more optimistic about China's real estate industry given the government's supporting role.
He predicted that although real estate sales and prices will not rise this year, the extent of the decline will ease somewhat. This year's sales will drop 7%, prices will drop 10%, and new construction will drop 7%, all of which are significantly narrower than the declines in 2023 and 2024.
He believes housing demand and supply will return to historic averages sometime next year, and shares of companies with large land reserves in 21 major cities may rebound.
According to Lin's analysis, China's real estate market was healthier than Japan and Hong Kong during the crisis because China's urbanization rate was lower, household leverage was lower, and foreign exchange controls were strict. Together, these factors have given the Chinese government the ability to better manage the housing bubble.
In the short term, the key to the recovery of the real estate market is continued inventory removal. He believes that after the reduction of financing channels for housing enterprises, many companies have stopped buying land and building houses, tightened supply, and slowed the rate of price decline.
Lin Zhenhong believes that real estate prices and new construction area may stabilize before June 2025:
Once prices stabilize, we think the suppressed demand will return because the three-year cycle of falling housing prices caused people to delay buying homes.
Looking ahead to the future performance of various real estate agents, Lam Chun-hung said he values which developers have changed their business model and increased commercial real estate exposure, which can generate more recurring rental income and protect developers from the cyclical decline in housing demand. Another important sign is which developers are still buying land, as this determines the profit prospects after three or four years.
Some cities have shown signs of recovery with policy support
Financial institutions' support for real estate has been increasing since last year. Whether it is a “white list” of real estate projects or policies such as operating property loans, it is conducive to broadening financing channels for housing enterprises, further meeting the reasonable financing needs of real estate enterprises with different forms of ownership and promoting the stable and healthy development of the real estate market.
Furthermore, according to data from the General Financial Supervisory Authority, banks issued 3 trillion yuan of development loans and 6.4 trillion yuan of housing mortgage loans respectively last year, which together amounted to nearly 10 trillion yuan. The amount of bonds issued by banks investing in real estate companies in 2023 increased 15% compared to 2022. In December of last year, several banks held another housing enterprise symposium to listen to the demands of enterprises, put forward specific measures, and reach bank-enterprise cooperation agreements and financing intentions with some housing enterprises.
According to the China Real Estate Industry Association, in the first quarter of this year, the property market has experienced partial recovery. Looking at first-tier cities, the northern Guangshen, Shenzhen, and Shenzhen performed best. After the Spring Festival, whether it was second-hand housing transactions or new housing project visits or removals, all showed a recovery.
Among second-tier cities, Nanjing, Chengdu, Wuhan, Tianjin, and Qingdao continued to heat up. Among them, the rate of removal of the new housing market in Nanjing rebounded to a new high since 2022, and the removal rate of newly opened projects in Chengdu remained at a high level of 60%. Although sales in the new housing market in Wuhan have not recovered to pre-holiday levels, the second-hand housing market continues to heat up and has reached a high point of nearly 1 year. The second-hand housing markets in Tianjin and Qingdao have also continued to heat up, reaching their highs since the second quarter of 2023.
editor/tolk