Haitong: Optimize multiple tax policies to boost supply and demand sides, the fundamentals of the real estate industry have stopped declining and stabilized.

Haitong released a research report stating that after the political meeting at the end of September, there has been a noticeable change in the pace and intensity of policy implementation, and both corporate financial statements and profitability are expected to improve to varying degrees. On one hand, the new policies increase the preferential treatment for deed taxes, support residents' housing demand, expand the scope of value-added tax exemption, and reduce the cost of second-hand transactions; on the other hand, the new policies lower the lower limit of the land value-added tax pre-collection rate and reduce the pre-payment burden on enterprises. The timely and effective introduction of these new policies, with efforts from both the supply and demand sides, are expected to stabilize the fundamentals of the market and stop the decline in the later stages. Event: On November 13, the Ministry of Finance, the State Administration of Taxation, and the Ministry of Housing and Urban-Rural Development jointly issued a notice on tax policies related to promoting the stable and healthy development of the real estate market, including housing transaction deed tax policies and value-added tax policies after the cancellation of standards for ordinary residential and non-ordinary residential in relevant cities. On November 13, the State Administration of Taxation issued a notice on lowering the lower limit of the land value-added tax pre-collection rate. The above-mentioned notices will be implemented from December 1. Haitong's main viewpoints are as follows: Increase the preferential treatment for deed taxes to support residents' housing demand. The new policy states that for individuals purchasing a family's only residential property with an area of 140 square meters or below, the deed tax will be levied at a reduced rate of 1%, while for properties with an area above 140 square meters, the reduced rate will be 1.5%. For individuals purchasing a second residential property, the tax rate will be reduced by 1% for properties with an area of 140 square meters or below and by 2% for properties with an area above 140 square meters. Compared to previous deed tax policies, this policy extends the applicability of the 1% tax rate from properties of 90 square meters or below to those of 140 square meters or below, and clarifies that this deed tax preferential policy is applicable nationwide, including in first-tier cities. The new policy will further lower the cost of purchasing homes and benefit demand release from newly city residents (especially in first-tier cities). Reduce the cost of second-hand transactions and expand the exemption of value-added tax. The new policy states that in first-tier cities where ordinary and non-ordinary residential standards have been canceled, the same value-added tax policy for personal sales of residential properties applies as in other regions of the country, exempting individuals who have owned a property for 2 years or more from paying value-added tax when selling it. According to the transitional policy under the "Business Tax Transformed into Value-added Tax Pilot Scheme," individuals who sell ordinary residential properties that they have owned for 2 years or more have been exempt from paying value-added tax. However, non-ordinary residential properties in first-tier cities were not included in this tax incentive. This adjustment of the policy aligns with the current trend of pursuing housing quality, reduces the cost for residents in first-tier cities during second-hand property transactions, and has a positive impact on promoting liquidity in property transactions and driving the renewal and replacement of new properties. Lower the lower limit of the land value-added tax pre-collection rate to reduce the pre-payment burden on enterprises. The new policy states that in cities where the standards of ordinary and non-ordinary residential properties have been canceled, ordinary residential properties for which the taxable amount of the added value does not exceed 20% of the deducted amount continue to implement the exemption policy for land value-added tax; The lower limit of the land value-added tax pre-collection rate has been lowered by 0.5 percentage points. After the adjustment, except for affordable housing, the lower limit of the pre-collection rate in eastern provinces is 1.5%, in central and northeastern provinces is 1%, and in western provinces is 0.5%. The reduction of the land value-added tax pre-collection rate and the maintenance of the preferential treatment for land value-added tax will effectively alleviate the cash flow pressure on enterprises. The timely and powerful introduction of the new policy and the efforts from both the supply and demand sides. On November 8, the Standing Committee of the National People's Congress hinted at the introduction of tax policies to support the real estate market, and on November 13, the relevant policies were promptly released. Based on the statements related to real estate tax policies at the press conference in October (which clarified the connection between the cancellation of standards for ordinary and non-ordinary residential properties and the value-added tax and land value-added tax policies), the new policies include deed tax incentives and a reduction in the lower limit of the land value-added tax pre-collection rate to support the market. These policies are beneficial for stabilizing resident demand and reducing enterprise liquidity risks, with efforts from both the supply and demand sides aimed at guiding the industry to restore confidence and accelerate the stabilization of the market. Investment recommendations: Maintain an "outperform the market" rating and continue to favor: 1) Development companies: A-shares - China Vanke Co., Ltd. (000002.SZ), Poly Developments and Holdings Group (600048.SH), China Merchants Shekou Industrial Zone Holdings (001979.SZ), Zhuhai Huafa Properties (600325.SH), Xiamen C&D Inc. (600153.SH), Seazen Holdings (601155.SH), Gemdale Corporation (600383.SH), Beijing Urban Construction Investment & Development (600266.SH), Beijing Capital Development (600376.SH), Hangzhou Binjiang Real Estate Group (002244.SZ), Shenzhen Tagen Group (000090.SZ); H-shares - CHINA OVERSEAS (00688), CHINA RES LAND (01109), LONGFOR GROUP (00960), GREENTOWN CHINA (03900), COUNTRY GARDEN (02007), MIDEA REAL EST (03990). 2) Property management companies: ONEWO (02602), CG SERVICES (06098), CHINA RES MIXC (01209), POLY PPT SER (06049), CHINA OVS PPT (02669), China Merchants Property Operation & Service(001914.SZ) and YUEXIU SERVICES(06626).3) : Shenzhen Overseas Chinese Town (000069.SZ). 4) : Shanghai Zhangjiang Hi-Tech Park Development (600895.SH). Risk Warning: Risks of downturn in industry fundamentals.