Sinolink: Supply and demand are approaching the bottom, core cities and real estate companies are relatively strong.

Sinolink released a research report stating that with the release of policy effects, it is expected that the transaction volume of commercial housing will likely stabilize and stop declining by 2025. However, considering that it will take some time for the sales improvement to transmit to the land market and that the supply is likely to remain low, it is expected that the transaction volume of the land market may reach a bottom by 2025. Core city transaction prices are expected to remain strong, focusing on real estate companies that are deeply cultivating the Pearl River Delta, Yangtze River Delta, and Jing-Jin-Ji economic circles. It is recommended to continue to focus on stable operation and policy-sensitive targets. It is also suggested to pay attention to property and construction companies with significant government receivables, local urban investment corporations benefiting from local debt, targets for mergers and acquisitions, and state-owned real estate companies trading below book value. Sinolink's main points are as follows: Overview of land supply: Overall weak, significant surge in the fourth quarter The supply area of residential real estate land in 2024 decreased compared to previous years, reaching the lowest value in nearly a decade. According to the China Index Research Institute, the planned construction area in 2024 was 450.42 million square meters, a decrease of 28.7% from 2023. In terms of pace, the highest decrease in 2024 occurred from May to August, especially in May 2024 when the planned construction area was only 18.42 million square meters, a year-on-year decrease of 50.3%. In September, due to the boost of policies and the restoration of market confidence, land supply by local governments began to recover, narrowing the decline to around 22% in the fourth quarter. In terms of city tiers, the decline in residential land supply in 2024 in third and fourth-tier cities was smaller than in first and second-tier cities, reflecting the higher dependence of lower-tier local governments on land revenue. In terms of city clusters, the supply of residential land in city clusters in 2024 decreased compared to 2023, with no significant overall differences in the decline. Overview of land transactions: Overall approaching the bottom, improvement in key city clusters (1) The total transaction volume of residential land has been continuously decreasing over the past four years, reaching 38.415 million square meters in 2024, a year-on-year decrease of 22.9% from its peak of 117.516 million square meters in 2020, adjusting 67.3%. Looking at monthly data, in the first half of the year, most months saw a year-on-year decline of over 40%, but in the fourth quarter, as market expectations changed and the willingness of real estate companies to enter the market increased, the year-on-year decline narrowed significantly to 13.8%. (2) In terms of city tiers, after experiencing a recovery in the year-on-year decline in 2023, first and second-tier cities saw an increase in the decline in 2024, while third and fourth-tier cities saw a significant narrowing in the decline after adjustments from 2021 to 2023. In terms of city clusters, the year-on-year decline in land transactions in the Beijing-Tianjin-Hebei and Pearl River Delta city clusters in 2024 compared to 2023 significantly narrowed, with declines of -8.5% and -9.3% respectively. (3) In terms of unsold rates, the national land unsold rate in 2024 was 13.0%, a decrease of 3.7% from 2023. Considering that some cities currently have high inventory levels, local governments continued to reduce land supply in 2024 to alleviate the pressure of oversupply. (4) In terms of premium rates, the overall fluctuation range in 2024 was concentrated between 1.5% and 6.5%, showing narrow fluctuations. This reflects that land transactions in many cities are not active, and some cities have urban investment to support, limiting the premium rates of land transactions. Overview of land acquisition by real estate companies: State-owned enterprises remain dominant, urban investment continues to support In 2024, the equity land acquisition amount of the top 100 real estate companies experienced a significant decrease to 957.6 billion RMB, a year-on-year decrease of 27.6%, a decline similar to the overall residential land transactions in the country. It is worth noting that in recent years, the proportion of state-owned enterprises in the top 20 has continued to increase, with urban investment and construction companies showing a significant increase in the proportion in the top 20. Nearly half of the top 20 real estate companies in land acquisition in 2024 belong to urban investment or construction companies, reflecting the increasing necessity of urban investment to support land transactions in the context of market demand disparities to maintain relatively stable land transfer fee income for local governments. Overview of urban land transfer fees: Decrease in the number of cities with land transfer fees exceeding 100 billion, better performance in core cities than overall In 2024, the top three cities in terms of urban land transfer fees were Beijing (175.2 billion RMB), Shanghai (164.4 billion RMB), and Hangzhou (142.3 billion RMB). Compared to 2023, the number of cities with land transfer fees exceeding 100 billion decreased from 9 to 3, reflecting the gradual decrease of cities that are currently highly attractive to real estate companies under the contraction of the market. The top ten are mainly concentrated in the Yangtze River Delta, Pearl River Delta, and Beijing-Tianjin-Hebei city clusters. It is also worth noting that Xi'an and Changzhou have performed well in recent years, reflecting the attractiveness of some cities to the market due to their economic and industrial advantages. Risk warning: The poor market boost from loose policies; weak recovery in third and fourth-tier cities; real estate companies default on debts.