Xiangcai Securities: Sales in the real estate industry have narrowed year-on-year declines. Investment still requires policy support.

Xiangcai Securities released a research report stating that in March, the decline in sales narrowed, but investment remained weak and still required support from the policy level. Based on the policy goal of "stabilizing the decline", the policy space on the demand side will be reflected in further relaxing restrictive measures in core cities, lowering mortgage rates, etc.; supply-side policies will mainly focus on the goal of "strictly controlling incremental supply", especially the acceleration of the acquisition of existing housing and idle land and the progress of urban village transformation, thereby improving the market supply and demand structure and maintaining an industry "buy" rating. It is recommended to focus on two directions: (1) Leading real estate companies with land acquisition capabilities and reasonable land reserves, such as Poly Developments and Holdings Group (600048.SH) etc.; (2) Leading intermediary institutions benefiting from the continuous active transactions in the second-hand housing market, such as 5i5j Holding Group (000560.SZ) etc. The main view of Xiangcai Securities is as follows: The decline in sales area narrowed in January-March, with the decline in sales amount smaller than the sales area. According to data quoted from the National Bureau of Statistics by Wind, the sales area of commercial housing in January-March 2025 was 219 million square meters (YoY -3%), with a decline narrowing by 2.1pct from the previous month; the sales area of residential housing was 185 million square meters (YoY -2%), with a decline narrowing by 1.4pct from the previous month. In March, the YoY changes of commercial housing and residential housing sales areas were -0.9% and -0.6% respectively, showing a significant narrowing of the decline. In terms of sales amount, the sales amount of commercial housing in January-March 2025 was 2.08 trillion yuan (YoY -2.1%), with a decline narrowing by 0.5pct from the previous month; the sales amount of residential housing was 1.84 trillion yuan (YoY -0.4%), remaining the same as the previous month. In March, the YoY changes of sales amounts for commercial housing and residential housing were -1.6% and -0.4% respectively. Overall, the decline in new housing sales in March has significantly narrowed, but the weak demand for new housing is also constrained by supply. According to data from the Zhongzhi Research Institute, the supply area of residential housing (excluding affordable housing) in 34 core cities decreased by 22.8% YoY in March, and the reduced supply further affected transactions. The decline in capital in place for real estate companies in January-March slightly expanded, but personal mortgage loans and domestic loans improved YoY. According to data quoted from the National Bureau of Statistics by Wind, the capital in place for real estate companies in January-March 2025 decreased by 3.7% YoY, with a slight expansion of 0.1pct from the previous month, and a 3.9% YoY decrease in March alone. Breaking it down, the YoY changes of deposits and advance payments from January to March were -1.1%, with a 0.2pct expansion from the previous month, and -1.4% YoY in March alone; personal mortgage loans decreased by 7% YoY, narrowing by 4.7pct from the previous month, and increasing by 0.3% YoY in March alone; domestic loans increased by 2.3% YoY, narrowing by 3.8pct from the previous month, and increasing by 6.2% YoY in March alone; self-raised funds decreased by 5.8% YoY, with an expansion of 3.7pct from the previous month, and decreasing by 11.7% YoY in March alone. The decline in investment in January-March expanded, with the decline in new construction and completion narrowing. According to data quoted from the National Bureau of Statistics by Wind, the completed investment in real estate development in January-March 2025 decreased by 9.9% YoY, with an expansion of 0.1pct from the previous month, and a 10% YoY decrease in March alone. The YoY changes of new construction area of buildings from January to March were -24.4%, with a narrowing of 5.2pct from the previous month, and -18.1% YoY in March alone; the YoY changes of construction area were -9.5%, with an expansion of 0.4pct from the previous month, and -33% YoY in March alone; and the YoY changes of completion area were -14.3%, with a narrowing of 1.3pct from the previous month, and -11.5% YoY in March alone. The decline in new construction is still significant, which will continue to affect completion. The area and amount of land transactions in March saw a significant YoY increase. According to Wind data, the YoY changes in the land supply and construction area for residential use in the top 100 medium-sized cities in January-March 2025 were -21% (a decrease of 9pct from the previous month) and +17% (a decrease of 23pct in growth) respectively. According to the data of 300 cities collected by the Zhongzhi Research Institute, the YoY changes in construction area for residential land transactions from January to March were +8.2%, and the YoY changes in transaction amount were +36.3%. The significant increase in land transaction amount was mainly influenced by the rebound in land auction heat in core cities, with the average transaction premium rate of 20% in 300 cities in March (up by about 6pct from February). In March alone, the YoY changes in planned construction area and transaction amount in the 300 cities were +23% and +29% respectively, with the transaction amount showing continuous growth for three months. Risk warning: External changes impact the domestic economy, affecting residents' income and confidence recovery, leading to slower-than-expected recovery in real estate sales; failure to meet expectations in the implementation of real estate support policies and weakening marginal utility of demand-side policies; slow progress in the implementation of policies for acquiring existing housing and land.