Guosen Real Estate's 26-year mid-term investment strategy: Focus on the valuation recovery space brought by the improvement of data margins.

Guosen released a research report stating that in the second half of the year, it is expected that the heat of the new house market in 2026 will stabilize at a low level, with sales totaling 7.7 trillion yuan (-8.3%), and sales area reaching 830 million square meters (-5.4%), with a slight narrowing of the decline. It is expected that new construction will see positive growth. Due to insufficient inventory of pre-sale homes, there is no basis for improvement in the short term, with an expected completion area of 470 million square meters (-20%). Investment is expected to benefit from the improvement in new construction, totaling 7.5 trillion yuan (-9%). Attention is focused on the valuation repair space brought about by the improvement in marginal data. Key points are as follows: Review of the first half of the year: The fundamentals show marginal improvement, and second-order price derivatives turn positive. In the first half of 2026, the real estate industry continued its bottoming out process, with market characteristics showing positive changes compared to the past few years. On the transaction side, there was strong activity in the secondary housing market, surpassing expectations during the traditional off-season; on the price side, the decline in secondary housing prices continued to narrow, with some core cities already stabilizing, and the second-order positive derivative of house prices gradually emerging; in terms of structure, the improvement in demand led to a recovery in the replacement chain, with high-energy cities showing better performance in quality assets; in the rental market, after a long period of adjustment, rental indexes in some core cities showed signs of stabilization and increase, providing marginal support for market improvement expectations. The industry is currently in a transition phase from "expectation repair" to "fundamental verification". Although indicators such as investment and new construction are still under pressure, improvements on the demand side, price stabilization, and marginal rental recovery collectively indicate that the industry's most pessimistic phase may be over. In the second half of the year, it will be important to focus on the sustainability of transactions, the range of price stabilization, and whether the increase in rentals can form a positive cycle. Outlook for the second half of the year: Core data is expected to bottom out and recover. Current total inventory continues to decline, but there is still an excess inventory of approximately 700 million square meters, with land inventory accounting for over 60%, showing a "source accumulation" type of inventory structure. It is expected that the heat of the new house market will stabilize at a low level in 2026, with sales totaling 7.7 trillion yuan (-8.3%), and sales area reaching 830 million square meters (-5.4%), with a slight narrowing of the decline. New construction is expected to see positive growth. Completion is expected to be 470 million square meters (-20%) due to insufficient inventory of pre-sale homes and no basis for short-term improvement. Investment is expected to benefit from the improvement in new construction, totaling 7.5 trillion yuan (-9%). Investment suggestion: Focus on the valuation repair space brought about by the improvement in marginal data. Assuming that high-frequency data does not undergo a second bottom, we predict three stages in the future evolution of real estate stocks: 1) the first stage "not so bad": the current discount of real estate stocks has already priced in pessimistic future price declines, and the continuous improvement in data has not been reflected in stock prices, so a small amount of short covering could provide a significant boost; 2) the second stage "confirmation of bottom": price stabilization becomes a consensus, with some cities experiencing price increases and clear reduction in depreciation pressure; 3) the third stage "upward price movement": pricing remains primarily based on PB, but some real estate companies will gradually refer to PE. We suggest continuing to increase exposure to the real estate sector, maintaining an "outperform the market" rating, and selecting targets that are sufficiently discounted, actively acquiring land, and relatively well-positioned for risk management. Recommended stocks include CHINA JINMAO(00817), YUEXIU PROPERTY(00123), GREENTOWN CHINA(03900), CHINA RES LAND(01109), CH OVS G OCEANS(00081), China Merchants Shekou Industrial Zone Holdings(001979.SZ), KE Holdings, Inc. Sponsored ADR Class A(02423,BEKE.US), etc. Risk warning: Policy implementation effects and subsequent launch intensity are lower than expected; external environmental changes leading to unexpected downward trends in real estate fundamentals; real estate credit risks unexpectedly impacting.