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2026-09-30 17:27:26 Citi published a research report stating that China's property sector is seeing the contradiction of improving market conditions but deteriorating earnings and return on equity. Sector share prices have rebounded on market expectations of new policy support, including the State Council executive meeting and mortgage interest subsidies, as well as stabilizing home prices in Shanghai and Beijing and a sales recovery in September. The bank believes 2027 will be a key year for home price recovery in core cities, supported by reduced new supply and inventory levels. However, it remains cautious on 4Q26 as developers' sales and earnings face risks after the completed-home sales policy, including a shrinking new-home market and pressure on earnings and return on equity from a longer cash conversion cycle. The bank said that after the State Council executive meeting proposed on Mon (28th) to study policy measures to stabilize the property market and promote employment and income growth, the market has already priced in expectations for a 100 bps mortgage interest subsidy for first-time homebuyers. Citi believes the significance of policy support lies more in improving households' expectations for home prices than in materially boosting purchasing power. It estimated that monthly mortgage repayments for first-time homebuyers could decline by 13%. The bank noted that inventory for new homes in tier-one cities stands at around 20 months, which is not considered high under the completed-home sales system given the construction cycle of around 24 months. Since the beginning of this year, secondary home prices in Shanghai, Beijing and Shenzhen have risen by around 5%, 3% and 1% respectively, while rents in Shanghai and Shenzhen have increased by 2.3% and 2.2% respectively. The bank said the market reacted positively to details of the completed-home sales policies in Beijing and Shanghai, including the extension to December 2026. However, only 1%/3% deposits are collected during pre-sales, with most cash not recoverable until project completion, extending the cash recovery cycle to around two years. Unless home prices rise by 7% or more, pressure on cash flow, earnings and return on equity is expected to persist. Citi believes the reform will ultimately benefit industry leaders by accelerating the formation of an oligopolistic market structure and rebalancing supply and demand in core cities, supporting a home price recovery in 2027. Therefore, it views any sector pullback in 4Q as a potential buying opportunity positioning for 2027. Within the sector, Citi prefers CHINA OVERSEAS (00688.HK), CHINA RES LAND (01109.HK), BEKE-W (02423.HK) and CHINA JINMAO (00817.HK). (da/ad)~ AASTOCKS Financial News Website: www.aastocks.com This article was automatically translated by AI, the Chinese version should be considered the authoritative version. AASTOCKS.com Limited does not guarantee its accuracy or completeness and accepts no liability for any damages or losses arising from the use of this translation. | |