Zhongjin: Policy-driven industry stabilization may have established a historical bottom for real estate stock valuations.

CICC released a research report stating that currently, Chinese real estate developers are in the early stage of deleveraging. However, the bank believes that the period of most rapid decline in market volume and prices may have passed, and policy efforts are beginning to actively support industry stabilization. For real estate stocks, the bank generally believes that the historical valuation bottom may have been established, with future focus on the pace and potential of upward movement, with the main catalysts being incremental policies and housing price trends. Under the baseline scenario, CICC advises investors to seize further upside potential in real estate stocks that may arise from the easing trend of market volume and prices by 2025. CICC's main views are as follows: "Promoting the stabilization of the real estate market" is the new emphasis on the policy side, with fiscal policy being the focus. Since the current real estate cycle, real estate policies have gradually shifted from "mainly stable" to "progressive stability," and the new statement of "stabilizing the market" at the September Political Bureau meeting signals further shift towards "active support" on the policy side. Considering that the core contradiction in the current market is the insufficient total demand for housing due to declining expectations for both household income and housing prices, the bank believes that fiscal policy's efforts in economic stimulus and housing stockpiling are crucial. However, given the uncertainty in the enforcement and pace of policy implementation by 2025, the bank assumes three policy scenarios of strong, moderate, and weak for fundamental outlook. Looking ahead to 2025, the bank expects that strong policies may drive sales stabilization, but there may still be inertia in housing prices and investment pressures. The different intensities of policy efforts on the supply side will first be reflected in the total sales volume of primary and secondary homes. The bank predicts that in 2025, under strong, moderate, and weak scenarios, the total sales volume may remain stable, decline by 6%, and decline by 14% respectively. Due to supply, pricing, and "delivery-to-mortgage" reasons, the proportion of secondary home sales may further increase to 50%-52% in 2025. Housing prices may still have a downward inertia, but the different policy intensities may also lead to differences in the slope of housing price trends in 2025. From an investment perspective, the bank forecasts that in 2025, under the strong, moderate, and weak scenarios, real estate investment may decline by 9%, 11%, and 15% respectively due to the continued performance... Bullish on real estate stocks, focusing on leading companies and dynamically evaluating troubled companies. The bank sees a clear trend of differentiation in the financial statements of Chinese real estate companies, with top companies expected to return to expansion after a period of adjustment, while troubled companies may require more time to adjust their capital and debt structures. Finally, if there is more systematic progress in the debt restructuring of real estate companies in the future, the bank recommends paying attention to the revaluation potential of some previously troubled companies, but such opportunities will still need to be dynamically observed and evaluated. Risks: Insufficient policy enforcement; external risks to the macro economy; land acquisition and investment by companies continue to be weaker than expected; continued strong inertia in declining sales and prices of new homes.