Despite the sluggish stock market and the widespread belief that the Chinese government's latest package of support measures is insufficient to revitalize the real estate market, a small number of investment institutions that are bullish on the Chinese real estate market still adhere to their optimistic stance.
Before the announcement of the easing measures on May 17, some institutions including Citibank and Bank of America made positive predictions, believing that this package would be more powerful than the scattered measures of the past two years.
For the first time, the Chinese government instructed local governments to purchase unsold housing through state-owned enterprises, providing up to RMB 500 billion ($9.3 billion) for these purchases, fueling expectations of more funds.
In addition, the government further reduced the down payment requirements, canceled the lower limit of mortgage interest rates, and intensified efforts to stabilize the real estate industry mired in debt crisis. The industry has slipped into a debt crisis since 2021, leading to defaults by many developers.
The Hong Kong Hang Seng Mainland Real Estate Index rose 40% before the announcement in May, but has now fallen by nearly half as the market doubts the scale and effectiveness of the support plan. The stock price of state-owned developer Vanke has fallen by 28% after rising 90%.
However, bullish analysts believe that the prominent role played by the central government in coordinating the latest measures has actually strengthened their confidence, injecting a rare positive factor into an industry that has seen a 40% decline in new home sales and an 80% drop in company valuations from its peak.
"From a signal perspective, this is quite positive, which is why we have become more constructive," said Karl Choi, head of real estate research for Bank of America Greater China. He expects home sales for the top 100 developers to stabilize next year, after falling 40% to 50% year-on-year in the first four months.
Choi said that some stock price increases exceeded his expectations for the gradual recovery of the real estate market, so he is currently more "picky" about developers, but still bullish on the industry in the long run.
Citigroup analyst Griffin Chan raised the target price of individual real estate companies this month, with the most significant increase in target price exceeding 30% for private enterprises CIFI Holdings and Longfor. Chan predicts that he will increase his recommendations for the entire industry in the future, believing that the latest policy will promote a soft landing for the industry.
France's CLSA has raised its rating on companies such as Vanke from "outperform the market" to "buy", saying the government-led purchase of vacant housing will improve the companies' cash flow.
John Lam, head of China research at UBS, has been bullish on the industry since January, and says the latest measures confirm the government's "inventory reduction" intentions, strengthening his view. He expects housing prices to bottom out in mid-2025.
However, recent real estate data has not been good, and most analysts are not so optimistic about the prospects for the industry.
"The industry is still fragile," said Harry Murphy Cruise, economist at Moody's Analytics.
"This is especially true considering the situation of Chinese households," he said, "it has been very difficult in the past few years to get them back into the market."
A senior executive at a Shanghai-based developer said the turning point has not yet come. "It may take three to four years for a recovery after inventory reduction," the executive said, asking to remain anonymous due to sensitivity of the issue.