Real estate sector shows strong upward momentum: multidimensional resonance, is the "early spring" here?

Property sector reappears "the spring river water warms the duck to know first" effect. On March 3, the property sector in the Hong Kong stock market showed significant fluctuations, with a remarkable increase in the stock prices. In the morning session, the domestic housing stock sector surged, with an increase of more than 4% at one point, leading many other sectors. However, the sector's increase narrowed to around 2% later, and by the end of the day, the sector had increased by 0.68%. Individual stocks such as RONSHINECHINA (03301) rose by over 12%, Xuhui Holdings (00884) rose by over 5%, and COUNTRY GARDEN (02007) rose by over 4%. (Quote source: Futu) Compared to the lackluster closing increase in domestic housing stocks, the property management sector outperformed many other sectors in terms of increase. The sector opened high and continued to rise throughout the day, with an increase of over 5% at one point. By the end of the day, the sector's increase was at 3.41%, making it one of the top-performing sectors. In terms of individual stocks, FIRST SERVICE surged by over 11%, while ONEWO, JINMAO SERVICES, ZHENRO SERVICES, and CG SERVICES all rose by over 8%. Industry experts believe that this may be the power of a "small spring" in the real estate market. It is worth noting that although the recent rise in the property sector has been supported by favorable policies, such as the emphasis on "stabilizing the housing market and stock market" in the meeting of the Central Political Bureau of the Communist Party of China held on February 28, the growth effects brought by the "small spring" are more pronounced. Founder pointed out that the positive policy outlook set by the central government lays the foundation for the continuous introduction of policies, and the real estate market may enter a new round of policy release cycle. The bank pointed out that the early performance of the "small spring" this year has been excellent, the supply and demand structure continues to improve, and the trend of stabilization after the decline is expected to be further consolidated with the continued support of policies. In addition, the research center of CREC also pointed out that March is the peak season for real estate transactions with the "Golden March and Silver April", and overall supply and demand are expected to recover, maintaining growth on a monthly basis. However, considering the high base factor in the same period last year, the year-on-year comparison may remain stable or slightly decline, and some cities may experience a local "small spring". In conclusion, the alignment of various favorable factors indicates that the real estate market may have passed its "worst moment". Long-term demand may exceed 875 million square meters.Industry valuation repair is imminent.According to observations, real estate demand can be broadly divided into two categories based on the sources of residential housing needs generated, namely endogenous demand and exogenous demand. The increase in population and urbanization mainly leads to urban population growth, resulting in rigid demands for self-occupancy; the increase in per capita housing area and the decrease in average household size mainly stem from residents' desire to improve their quality of life, generating improvement-demand which is also endogenous. As cities develop, governments may demolish old houses in certain areas or renovate old communities, the demolition of houses mainly relies on government urban renewal work, thus generating renovation demand which is exogenous. According to estimates from China Galaxy Securities, by 2050, the total demand in the real estate industry will exceed 875 million square meters, with rigid demand, improvement demand, and renovation demand accounting for 169 million square meters, 618.5 million square meters, and 87.8 million square meters respectively, representing 19.30%, 70.67%, and 10.03% of the total demand. As population growth slows and urbanization rates level off, improvement demand may become the mainstay of total demand. It is worth noting that out of the total demand of over 875 million square meters, approximately 89.97% comes from endogenous demand (with rigid demand accounting for 19.30% and improvement demand for 70.67%), while 10.03% comes from exogenous demand. Therefore, it is clear that long-term housing demand is expected to exceed 875 million square meters, with the central focus of endogenous demand being 806 million square meters. It is evident from the above data that although the birth rate has declined in recent years, the growth of endogenous demand driven by rigid demand (urban population growth) and improvement demand (housing quality improvement) is still significant. Additionally, when internal demand is insufficient, external demand can be stimulated through policies to support the real estate market and help reduce inventory. In terms of the whitelist policy, in October 2024, the Ministry of Housing and Urban-Rural Development announced that all real estate development projects would be included in the "whitelist" category, leading to a rapid expansion of loan amounts under the "whitelist". According to data from the China Banking Regulatory Commission, by the end of 2024, the amount of loans under the "whitelist" reached 5.03 trillion yuan, exceeding the target of 4 trillion yuan, and as of January 22, the loan amount further increased to 5.6 trillion yuan. The expansion of loans under the "whitelist" has driven the financing cash flow of real estate enterprises and improved the "handover" of completed buildings. In terms of land acquisition and storage policies, as of February 13, 2025, it was reported that 14 cities in Guangdong including Zhuhai, Huizhou, Maoming, Zhongshan, Heyuan, Yunfu, and Chaozhou had disclosed their land acquisition plans funded by local government special bonds, with a total of 96 land plots acquired at a corresponding price of 243.585 billion yuan. Local governments have further advanced the acquisition of idle land on the basis of last year's acquisition of existing housing, which is clearly helpful in alleviating local inventory pressure and providing opportunities for real estate enterprises to exchange for excellent land resources. In conclusion, it is evident that the industry is currently facing a critical phase of inventory de-stocking, with both endogenous and exogenous demand playing important roles in the de-stocking of the real estate market. On one hand, maintaining the steady release of endogenous demand is crucial for maintaining the overall tone of industry development; in the current real estate environment, exogenous demand may be a key focus for 2025, with policy-driven renovation demand expected to become an important factor in supporting the industry's stabilization and recovery, thus potentially supporting overall industry valuation improvement. Therefore, the future outlook is optimistic for top real estate enterprises with excellent operational and financial capabilities, such as China Merchants Shekou Industrial Zone Holdings (001979.SZ) and LONGFOR GROUP (00960), as well as property management companies with stable performance and cash flow, such as CHINA RES MIXC (01209).