Since mid-September, the real estate sector has continued to rise sharply; since September 17, the housing stock sector in the Hong Kong stock market has surged more than 64%, and even recorded strong gains of 19.71%, 10.49%, and 31.19% on September 26, September 27, and October 2, respectively.

Looking at the 60-day increase, Rongxin China (03301) recorded an increase of more than 3 times, Sunac China (01918) and China Jinmao (00817) also achieved a double increase, while R&F Real Estate and Agile Group achieved increases of more than 90%. Nearly all concepts showed a significant positive trend.

Under such an upward trend, people have to say “the real estate sector is picking up.” Just as “no winter can be overcome”, since the real estate industry experienced frequent thunderstorms in 2022, the industry officially entered a period of recession, and the real estate sector in the secondary market was also chilling. Valuation shrank, and falling stock prices were common. Now, with the continuous rise in the real estate sector, is the real estate sector really picking up?

Many factors resonate, and “stopping the decline and stabilizing” is imperative

This time, the real estate sector has set off an upward boom. Unlike the past, it mainly includes a boost from both domestic and foreign factors, as follows:

First, the real estate policy mix continues to increase, and interest rates on stock mortgages have been lowered faster than expected, stimulating the real estate market to stop falling and stabilize at an accelerated pace.

Since September, five ministries and commissions, including the Ministry of Housing and Construction, the Ministry of Finance, the Ministry of Natural Resources, the Central Bank, and the Financial Supervisory Authority, have jointly issued a number of real estate easing policies, forming joint efforts in various aspects such as monetary policy, fiscal policy, and real estate finance policy. The degree of policy intensity, support, and stimulus can be called the highest in this round of easing. The incremental information mainly includes special bonds for the acquisition of existing land and real estate, the monetization and resettlement of 1 million urban villages, and the approval amount for whitelist loans reaching 4 trillion by the end of 2024.

Looking at a horizontal comparison, the monetization of shed reform and special land storage bonds in 2017 also boosted market sentiment. Although the current policy is slightly lower than in 2017, it mainly focuses on underpinning, and the core goal is to “stop the decline and stabilize.” However, considering the high inertia of the current market decline, there is a time lag in policy implementation. If the market trend deviates from policy goals, the possibility of further easing is not ruled out.

It can be seen from this that the current direction of the real estate policy is clear, and promoting the implementation of various policies in the future will be the key. If policies continue to gain strength and the economy recovers at an accelerated pace in the fourth quarter, market volume and price in core cities may bottom out and stabilize, thus providing important support for the national market to bottom up.

At the same time, the recent reduction in interest rates on stock mortgages has undoubtedly further stimulated the real estate industry to accelerate stabilization. On October 25, banks across the country made batch adjustments to eligible mortgage borrowers. Relevant borrowers reported one after another that they had received SMS notifications from loan banks, indicating that mortgage interest rates had been successfully adjusted, and that some borrowers were reduced by as much as 130 basis points.

According to preliminary official statistics, as of October 28, 21 national banks have completed batch adjustments. A total of 53.667 million and 25.2 trillion yuan stock mortgage interest rates have been lowered. Local legal banks will also complete batch adjustments on October 31.

Regarding the current stock mortgage interest rate adjustment, Wang Qing, the chief macro analyst at Dongfang Jincheng, believes that this policy has sent two signals. One is to boost residents' consumption, and the other is to help the real estate market stop falling and stabilize.

Second, once Trump is elected President of the United States in the US election, Trump's renewed commitment to lower interest rates may also give some boost to the real estate industry.

November 5 is voting day for the US election. Many states in the US allow voters to vote early. Currently, more than 47.5 million American voters have voted. Judging from various current signs, Trump's probability of winning the election seems to be quietly rising. According to the authoritative prediction model of the US “Capitol Hill” newspaper, the probability of Trump winning the election surpassed Harris for the first time on October 19, reaching 52%, while Harris fell to 42%.

The stock market's reaction is the most direct “weather vane.” According to reports, the KBW Regional Bank Index has risen 10% in the past month, Bitcoin has also risen 9%, and Trump Media Technology Group's stock has surged even more, completely outperforming the market.

This time, Trump aims to attract middle class and working-class voters, especially families suffering from high housing prices and high interest rates. Therefore, in order to win the favor of key swing states, he has repeatedly reiterated that if re-elected on November 5, he will drastically reduce US interest rates.

Looking at the many interest rate cut cycles in US history, the real estate industry has shown a certain upward trend in every round of interest rate cuts since interest rate cuts lower mortgage interest rates, reduce the cost of buying a home for buyers, and stimulate demand in the real estate market. For example,

The interest rate cut cycle in the early 1990s. After this cycle of interest rate cuts, the US entered the longest period of economic expansion in history, and the real estate market also showed a prosperous trend. Interest rate cuts during the COVID-19 pandemic in 2020. In order to cope with the impact of the COVID-19 pandemic on the economy, the Federal Reserve adopted large-scale interest rate cuts. Interest rate cuts during this period also had a positive impact on the real estate market.

However, there are also uncertainties. In the interest rate cut cycle from 2007 to 2008, the Federal Reserve cut interest rates 8 times in a row. In this period, although interest rate cuts were significant, systemic risks caused by the bursting of the real estate market bubble had already formed, and interest rate cuts had limited stimulatory effect on the real estate sector. Overall, however, US interest rate cuts have had a significant impact on the real estate sector in history.

Furthermore, since the US cuts interest rates, our country will generally cut interest rates accordingly, because we have to keep an eye on the interest rate spread between China and the US. Cutting interest rates too fast will cause large amounts of foreign capital to flee, and cutting interest rates too slowly will also give room for foreign investors to arbitrage. Therefore, this chain effect will also have a certain boosting effect on the domestic real estate market.

Is the current real estate sector worth investing in?

Catalyzed by these multiple factors, the real estate industry's sales data is also clearly improving.

Since late September, first-tier cities have ushered in the long-lost “gold nine silver ten”. The transaction area of commercial housing and second-hand housing has both increased, making it the highest transaction point during the year. Benefiting from supply-side contraction, the current area of real estate for sale has declined. In the future, stronger easing and stimulus policies will be implemented, and both supply and demand will strengthen, and real estate market turnover is expected to stabilize.

For new homes, according to Kerui, the first-tier benefit policy was directly favorable, and overall transactions remained high. In the first 20 days of October, transactions increased 11% year-on-year; while second-tier cities did not introduce new property market policies, a year-on-year decrease of 9%. There is a steady increase in visits and subscriptions for new housing front-end projects in Beijing, Guangzhou, Shenzhen, etc., and the popularity of new housing transactions is expected to continue for some time.

For second-hand housing, the year-on-year increase in the number of second-hand housing units sold in Beijing/Shanghai/Guangzhou was +38%/+70%/+86% respectively in the first 20 months of October. Second-hand housing was more flexible and more popular than new housing; second-hand housing transactions in second-tier cities were average, with a marked increase of +105% over the same period last year. In summary, the pulse market is expected to continue throughout October.

Does the marginal improvement in the above sales data mean that the real estate sector, which has bottomed out, may usher in an upward inflection point and become a topic worth focusing on in the secondary market in the near future?

Among them, Guojin Securities said that the property market may show a recovery in October after the New Deal. In the future, we need to pay attention to the continuing effects of the popularity of the property market, and at the same time follow up on the implementation of physical workloads such as storage, renovation and monetization and resettlement of dilapidated housing in urban villages.

If core cities can continue to send positive signals that the market has stopped falling and stabilized, it is expected to boost confidence, improve expectations, and actually usher in an inflection point where real estate has stopped falling and stabilized, and the real estate sector is expected to recover in valuation and performance. Continue to recommend leading targets that benefit from the gradual stabilization of the industry: real estate development companies recommend real estate companies that are deeply involved in high-energy cities and focus on improving products, such as Greentown China, Yuexiu Real Estate, and Binjiang Group; intermediary recommendations benefit from the continuous implementation of favorable policies, a continuous increase in second-hand housing market activity, and seashell, an intermediary platform with core competitiveness; property companies recommend Huarun Vientiane Life, which has steady property management, leading commercial management, and active dividends. It is recommended to focus on urban investment companies that benefit from localized bonds, and to focus on flexible targets involving mergers, acquisitions and restructuring.

Huachuang Securities also pointed out that real estate support policies have been introduced frequently recently. The core of an effective policy is capital to resolve the current imbalance between supply and demand by bearing losses, and easing local debt pressure can create conditions for real estate to stabilize. Optimistic expectations are that under the requirements of “stopping the decline and stabilizing”, it is expected that there will still be policy experiments, and attention will be paid to the second wave of policy game opportunities.

Based on the above, it can be seen that the initial effects of this round of real estate policies have been reflected, but at present, there are still quite a few problems with real estate fundamentals that need to be solved. Haitong Securities said that, on the one hand, there is still downward pressure on housing prices. The current increase in volume, or more, is “price in exchange for volume.” On the other hand, inventory is still high, and the removal cycle is still long. This means that housing enterprises are still at greater risk, and real estate as a whole is still a drag on the economy.

However, there is no doubt that due to the real estate industry's pivotal position in the economy, boosting the real estate market is definitely a necessary step if the economy is to actually recover.

Specifically, the real estate industry is an important pillar of the national economy. It is linked to many upstream and downstream industries, solved a large number of employment problems, and promoted the development of related industries. For example, the construction industry, building materials industry, financial industry, etc. are all highly dependent on the prosperity of the real estate market. Therefore, fluctuations in the real estate industry will have a ripple effect on these industries, which in turn will affect the overall economy. However, given the combined effects of the real estate industry's pivotal position, changes in the economic environment, and policy adjustments, it is difficult for other industries to grow rapidly when real estate does not rise.

From the perspective of valuation restoration, the real estate industry accounts for a relatively large share of market capitalization in the stock market. If real estate stocks recover their valuations due to an improvement in the industry, it will have a significant upward effect on the stock market index. At the same time, real estate stock valuation fixes will also change the market's risk appetite, making investors more optimistic about the overall stock market.

Therefore, it is easy to see that with the intensive introduction of policies and some positive changes visible to the naked eye, the entire real estate industry has confirmed its bottom in the short term, and the conditions for an upward rebound in the medium to long term. And once the medium- to long-term fundamental reversal is confirmed, the stock price will naturally reverse.