China Securities Co., Ltd.: Stabilizing returns after hitting bottom in the fourth quarter, the real estate industry ranks are reshuffling at an accelerated pace.

China Securities Co., Ltd. released a research report stating that in 2024, the year-on-year decrease in new home transactions in key cities was 19.6%, while second-hand home transactions increased by 12.0%. Since the fourth quarter, there has been a clear "whiplash effect" in new and second-hand home transactions, with a year-on-year increase of 28.7% and 75.3% in December respectively. The total sales amount of the top 100 real estate companies decreased by 30.3% year-on-year, with the number of real estate companies with over one trillion RMB in sales shrinking to 11, while the leading real estate companies remained stable. The total land value of new plots acquired by the top 100 real estate companies decreased by 30.6% year-on-year, indicating a trend towards sales-driven developments. The Central Committee meeting at the end of September proposed to stabilize the real estate market by implementing policies to address supply and demand, which has led to some signs of stabilization in the industry. The report recommends investing in top-performing real estate companies in high-tier cities, as well as transitioning real estate companies and quality commercial real estate assets. Key points highlighted by China Securities Co., Ltd. include: - Sales of the top 100 real estate companies decreased by 30.3% in 2024, with a positive growth in trading volume in the fourth quarter. - The total sales amount of the top 100 real estate companies in 2024 was 4.1865 trillion RMB, a decrease of 30.3% year-on-year, with the sales area decreasing by 32.4% year-on-year to 226.48 million square meters. The number of real estate companies with sales over one trillion RMB shrunk to 11. The "whiplash effect" in sales was evident in the fourth quarter, with a positive growth in trading volume year-on-year by 0.2%, which was significantly better than the previous three quarters. In December, the total sales amount of the top 100 real estate companies increased by 22.7% month-on-month. - In 2024, the new home transactions in key cities decreased by 19.6% year-on-year, while the second-hand home transactions increased by 12.0%. In the cities of interest to the bank, new home transactions totaled 122.55 million square meters, a decrease of 19.6% year-on-year. The transactions in first-tier, second-tier, and third-tier cities decreased by 0.7%, 9.9%, and 17.3%, respectively. Second-hand home transactions in key cities totaled 82.69 million square meters, an increase of 12.0% year-on-year, with year-on-year increases of 99.1%, 74.1%, and 42.8% in first-tier, second-tier, and third-tier cities, respectively. - The total land value acquired by the top 100 real estate companies in 2024 decreased by 30.6% year-on-year, with varying levels of land acquisition efforts among different tiers of companies. The total land value acquired by the top 100 real estate companies in 2024 was 2.2107 trillion RMB, a decrease of 30.6% year-on-year. A total supply of residential land in 300 cities in 2024 was 940 million square meters, a decrease of 19.7%. The total traded area was 700 million square meters, a decrease of 20.3%. In December, the total supply of residential land in 300 cities increased by 85.3% year-on-year, while the total traded area decreased by 19.2%. The average premium rate for land auctions was 3.8%, a decrease of 1.4 percentage points from the previous month. - Since the fourth quarter, there has been a combined effort in boosting supply and demand, leading to signs of stabilization in the industry. The bank continues to be optimistic about top-performing real estate companies in high-tier cities, while also recommending transitioning real estate companies and quality commercial real estate assets. Following the Central Committee meeting at the end of September, policies have been continuously introduced at both the central and local levels. In December, the regulatory orientation has continued to prioritize stabilizing the real estate market, with the Ministry of Housing and Urban-Rural Development pushing for this to be one of the top five tasks, leading to a continued stable trend in core city enterprises. Risk warnings identified by China Securities Co., Ltd. include: 1. Sales falling below expectations: The bank's focus on weekly sales area in key cities remains low, with sales still in the bottom region. There is a risk that sales may further decline or not recover as expected in the future. 2. Completion falling short of expectations: Delays in construction progress due to multiple factors may result in completion falling short of expectations. 3. Slow credit repair for real estate companies: Some highly leveraged private real estate companies still face the risk of insolvency, which could slow down the overall credit repair progress in the industry and affect the scale and cost of financing from the public market for real estate companies, thereby increasing the pressure on construction completion and cash flow in the industry.