Policy bottom + valuation rebound, has the real estate industry reached a turning point?

Title context: Policy bottom + valuation rebound, has the real estate industry reached a turning point? Text: The intensification of "supply and demand" policies is restructuring the industry's fundamentals. Policies such as the 15th Five-Year Plan, loan interest subsidies, and provident fund management plans continue to exert force on the demand side. Can the real estate industry's "strong policies" change the current situation of "weak demand"? It is understood that the real estate industry has entered the stock era, with both development volume and sales volume declining sharply. Enterprises are suffering severe losses and being passively cleared out. On the policy front, efforts are being made on both the supply and demand sides, and high-quality development of real estate has become a key focus of the 15th Five-Year Plan. The China Securities Regulatory Commission recently formulated the "Opinions on Supporting the Construction of a New Model for Real Estate Development through the Capital Market." Combined with large-scale loan interest subsidies nationwide, there are calls that the industry's fundamentals have reached a turning point. Based on multiple positive factors for the industry, the real estate sector has shown signs of launching, but different markets have diverged. The A-share market has remained strong. Since September 17, China Vanke (02202) has surged more than 25%, and 5i5j Holding Group (000560.SZ) still has upward momentum after three consecutive limit-up days. The Hong Kong stock market has shown weak upward momentum, with most targets falling back after two days of gains. After pulling back, China Vanke's gain was less than 10%, and SUNAC almost returned to its original level. The Hong Kong stock market seems unconvinced. However, the valuation of the real estate industry has entered a bottom range. So, is this rise a flash in the pan or a sign of an industry turning point? The policy bottom has appeared, and the industry may shift from bottoming out to a pro-cyclical phase It is understood that since the "Three Red Lines" were fully implemented in 2021, debt reduction, deleveraging, and tightened financing coincided with the pandemic. Housing purchase demand was sluggish, and rigid demand for marriage homes continued to decline. The real estate industry entered a recession, with all indicators such as industry sales and sales area declining across the board. From 2022 to 2025, commercial housing sales fell by about 40%, with "both volume and price declining." In 2026, the double-digit decline continued, but the downward trend has somewhat stabilized. Data source: publicly disclosed data From January to August 2026, real estate development investment fell by 19.9%, of which residential investment fell by 19.7%, new housing starts fell by 24.8%, completed area fell by 23.7%, commercial housing sales area was 499 million square meters, down 12.1%, sales amounted to 4.75 trillion yuan, down 13%, and the average unit price was 9,500 yuan per square meter. As of August, the area of newly built commercial housing for sale was 753 million square meters, down 1.1%, maintaining a relatively slow destocking pace. In fact, looking back over the past few years, the recession cycle has washed away the sand. Companies represented by Evergrande have gone bankrupt or been delisted, and most leading real estate enterprises are still in the bankruptcy restructuring stage. Although the six-year downturn cycle has not yet formed a "comprehensive stabilization," there are signs of a turning point in the real estate industry's development trend. The policy bottom has appeared, with continued efforts on both the supply and demand sides. Coexisting with fundamental adjustments, the bottoming-out cycle is expected to gradually shift toward a pro-cyclical phase. The national 15th Five-Year Plan underpins the basic foundation of the real estate industry. On August 28 this year, the Ministry of Housing and Urban-Rural Development, the People's Bank of China, the National Financial Regulatory Administration, and other departments issued a series of new real estate policies. The new policies continue to release a combination of measures on both the supply and demand sides. For example, the China Securities Regulatory Commission formulated the "Opinions on Supporting the Construction of a New Model for Real Estate Development through the Capital Market." "Trade-in" and loan interest subsidy plans have covered the whole country. At the end of September, the newly revised "Regulations on the Management of Housing Provident Funds" officially came into effect. At the same time, the pre-sale-to-completed-sale model is being accelerated, and "cash on one hand, property on the other" comprehensively improves the supply and demand structure. A turning point has yet to be confirmed, and leading high-quality real estate enterprises are "the strong remain strong" From the current state of the industry, the real estate industry is severely differentiated. Judging from the financial reports for the first half of 2026, most real estate enterprises continued to see double-digit revenue declines, with overall losses but somewhat narrowed. In the real estate industry, only by being "stable" can one go far. "The strong remain strong." Real estate enterprises with low debt ratios and central or state-owned enterprise backgrounds have shown resilience. Represented by Poly Developments and Holdings Group, CHINA RES LAND, and CHINA OVERSEAS, they have maintained profitability. In the first half of the year, shareholder net profits were 9.842 billion yuan and 7.03 billion yuan, respectively. Among them, CHINA OVERSEAS revenue grew against the trend, up 17.28% year-on-year, with a shareholder net profit margin of 7.2%. In terms of full-caliber sales amount, in the first half of the year, only Poly Developments and Holdings Group, CHINA OVERSEAS, and CHINA RES LAND had sales of more than 100 billion yuan. These three companies are all in leading positions in the industry in terms of debt management. Among them, CHINA OVERSEAS and CHINA RES LAND had the lowest debt-to-asset ratios excluding pre-sales at the end of the period. However, after six years of industry adjustment, most key real estate enterprises can still maintain a cash-to-short-term-debt ratio above 1.0 times. As financing policies have become more relaxed, real estate enterprises have taken the opportunity to extend debt duration. The proportion of short-term interest-bearing debt of key real estate enterprises is mostly below 35%. Facing downward pressure in the industry, developers are cautious about land acquisition. Central and state-owned enterprises with ample cash flow are the main force in land acquisition. In the first half of the year, the company with the highest land acquisition amount was Poly Developments and Holdings Group, followed by CHINA RES LAND. They continue to enrich high-quality land reserves, with new projects concentrated in core areas of core cities, gaining greater competitive advantages in the industry recovery cycle. As of the end of June 2026, among real estate enterprises that have disclosed information, those with the largest land reserve building area were China Vanke, CHINA RES LAND, and CHINA OVERSEAS. It is worth mentioning that, based on performance resilience and maintained profitability, the market values of the three high-quality real estate enterprises Poly Developments and Holdings Group, CHINA RES LAND, and CHINA OVERSEAS have been little affected by industry cycles. Taking CHINA RES LAND as an example, its market value has risen more than 5% this year and more than 25% over the past two years. In contrast, highly indebted real estate enterprises such as SUNAC have halved this year, and their current market value has fallen by 99% compared with 2020. It can be seen that "the strong remain strong" is very obvious across all indicators in the real estate industry. So when will the real estate industry usher in a turning point? Only in a pro-cyclical phase can excess returns be obtained. Referring to the lithium battery industry, it entered an adjustment period in 2022. In the first half of 2025, "volume and price" fell to the bottom, and the sector fell by more than 70%. Industry leaders Ganfeng and Tianqi Lithium Corporation were no exception. However, in the second half of 2025, a pro-cyclical phase began. Lithium carbonate prices started to rise, and the industry, after years of losses, began to make money. Funds favored the leaders. Among them, Ganfeng rose from a low of HK$16.2 all the way to a high of HK$91.2, an increase of 4.63 times. After May 2026, the sector declined along with lithium carbonate prices. A bottom turning point has a high premium appeal, but confirmation of a real estate turning point is uncertain. First, the scale on the supply side has contracted to a low point, but the demand side remains relatively weak, and expectations for "volume and price" increases are weak. Moreover, under the policy of "housing is for living, not for speculation," performance expectations rest on demand, not price. Second, policy underpinning and policy release, including loan interest subsidies and provident fund plans, need time to be verified on the demand side. Overall, the real estate industry is still in the bottoming-out stage. This year's 15th Five-Year Plan and the 8.28 new policies support high-quality development of the industry and bring expectations to the demand side. At this stage, the industry as a whole is loss-making, and target performance is differentiated. High-quality leading real estate enterprises are "the strong remain strong." Poly Developments and Holdings Group, CHINA OVERSEAS, and CHINA RES LAND are at industry-leading levels in multiple indicators such as performance, finance, and business. There are structural opportunities in the industry. During the bottoming-out cycle, high-quality leading real estate enterprises are "the strong remain strong," and if an industry turning point cycle arrives, high-quality leading real estate enterprises will also be the biggest beneficiaries, with high certainty of market value premium opportunities. Of course, targets at the expected valuation bottom have greater opportunities. China Vanke's PB ratio is only 0.2 times, lower than that of Poly Developments and Holdings Group, CHINA RES LAND, and CHINA OVERSEAS. If an industry turning point comes, its market value elasticity will be higher, and the value-for-money ratio will be greater.