Source: Glonui.

Three days after the September Political Bureau meeting, the People's Bank of China implemented various real estate financial support policies. Policies such as adjusting housing purchase restrictions, lowering transaction taxes, and reducing down payment ratios were promptly introduced in first-tier cities. This demonstrates the urgency of achieving the goal of stabilizing the real estate market.

We believe that starting from first-tier cities, it is expected to achieve a stabilization of housing prices within the year. If this round of policies fails to fully achieve the goal of stabilization, we expect that there is still ample potential space for policy adjustments.

▍Event:

The Ministry of Housing and Urban-Rural Development conveyed the spirit of the Central Political Bureau meeting, supporting cities, especially first-tier cities, in utilizing real estate market regulation autonomy effectively. The measures include adjusting housing purchase restrictions based on local conditions, autonomously optimizing various measures restricting residents from purchasing homes reasonably, timely introducing policies to reduce down payment ratios and interest rates, revitalizing existing land resources, and implementing a package of policies.

The People's Bank of China refined the pricing mechanism for commercial individual housing loans, lowered interest rates on existing housing loans, optimized requirements for refinancing guaranteed housing loans, increased the People's Bank's funding proportion, extended the maturity of the 16 financial policies and property management loan policies, and lowered the minimum down payment ratio for second home loans.

Guangzhou, Shanghai, and Shenzhen introduced measures to optimize real estate market policies, implement the spirit of the Political Bureau meeting, adjust housing purchase restrictions, lower down payment ratios, and expand the scope of value-added tax exemptions.

The focus of policies is concentrated in first-tier cities, with a greater intensity than in May 2024.

Compared to May 2024, Shanghai and Shenzhen have significantly expanded the scope of value-added tax exemptions, which has a more prominent role in connecting the housing replacement chain and revitalizing the secondary housing market.

The down payment ratio for first-time homebuyers in first-tier cities is beginning to align with the national level, and the intensity of purchase restrictions adjustments in Shanghai and Shenzhen is also greater than in May 2024, with Guangzhou even completely abolishing purchase restrictions.

The current down payment and tax requirements in first-tier cities are at the most relaxed level in history, and the purchase restrictions in Shanghai and Shenzhen are at a relatively lenient level compared to historical comparisons. The policies mainly focus on releasing improvement demand.

First-tier cities are not only the region with the greatest potential for policy introduction, but also the indicator for national housing prices.

We believe that the real estate market in first-tier cities is expected to be the first to stabilize. The Ministry of Housing and Urban-Rural Development expressed support for first-tier cities to make good use of autonomous control at the party meeting on September 29, which is relatively rare in history, specifically providing a guidance for a relaxed policy in first-tier cities.

This indicates that in the process of implementing stabilization measures, policies highly value the price expectation guidance role of first-tier cities, and acknowledge the fact that in each previous stabilization cycle (in 2008 and 2014), first-tier cities tend to be the first to stabilize.

The prompt implementation of policies illustrates the urgency of policies in seeking stabilization.

It took over half a month from the Political Bureau meeting on April 30, 2024 to the comprehensive policy introduced on May 17, 2024, but only 3 days from the Political Bureau meeting in September 2024 to the People's Bank of China and local authorities introducing a comprehensive policy.

After years of declining house prices and insufficient consumer confidence, it is indeed urgent to relax restrictions on improvement-driven demand. The relatively short time from policy formulation to actual implementation objectively demonstrates the urgency of halting the decline.

We believe that first-tier cities are expected to achieve a halt in house price declines within the year. If the policies do not achieve the desired effect, we expect ample room for further policy measures in various regions.

According to KE Holdings app, the number of house viewers and real estate transaction volume in first-tier cities is on the rise. With a decrease in the willingness of residents to sell properties in large quantities and under the support of new policies, we believe that house prices in first-tier cities are likely to be the first to stop falling within the year, thereby leading to a halt in house price declines in other parts of the country.

But if the policies fail to achieve the goal of halting house price declines, we estimate that there is still sufficient potential policy space to be utilized. Measures such as reducing real estate transaction taxes, increasing the deduction limit for individual income tax mortgage interest, raising provident fund loan quotas, and lowering provident fund loan interest rates are all tools available.

Risk factors:

With weak consumer expectations and policy effects falling short of expectations, the risk of continued house price declines persists. While lower-tier cities may benefit from the recovery in first-tier city markets, the marginal policy implementation capacity is lower than that of first-tier cities.

Investment Strategy:

Effectively grasp the elasticity space of the real estate industry chain during the process of stabilizing property prices. In core cities, trading service providers are expected to have a significant upward elasticity in sales revenue under the situation of cost stickiness.

We believe that when the target of stabilizing property prices is achieved from core cities to lower-tier cities, developers with land reserves on the asset side will have a significant value enhancement elasticity and performance recovery elasticity. The magnitude of this elasticity is related to the cities where the development companies are located.

Of course, stabilizing property prices has positive implications for the balance sheets and revenue scale of the entire industry chain enterprises.

This article is excerpted from the report "Major Issues Review of the Real Estate Industry - Policy Resolutely Empowering First-tier Cities, Expected Stabilization of Property Prices within the Year" released by CITIC Securities Research Department on September 30, 2024. Analysts: Chen Cong, Zhang Quanguo, Liu Hewei, Wang Tianyu, Zhu Chongyi, Li Junbo.

Editor / jayden