China Real Estate: Policy Easing Upbeat but Uncertainties Remain, We Prefer State-Owned Names
We view the recent favorable measures for the China real estate sector, including the scrapping of buying curbs in wealthy cities and the unwinding of the mortgage rates floor, as encouraging to homebuyers and investors. That said, we caution that potential buyers may remain on the sidelines amid falling home prices, and policy tailwinds will likely require a longer time to translate into a pickup in home sales. Additionally, although the CNY 500 billion in loans—backed by a relending facility from China’s central bank—to local state-owned enterprises for converting completed but unsold properties to affordable units should help clear excess inventory, execution risks remain, in our view. While the policy-induced rally has reflected the market sentiment shift, we maintain the valuations of stocks under our coverage, given industry fundamentals that are still weak. Despite a more demanding sector valuation, we think shares of state-owned developers such as China Overseas Land & Investment and China Resources Land remain attractive. We continue to prefer both names, given their more resilient contracted sales and better financial strength.