CITIC SEC: Presale-to-completed-sale shift drives reform of land planning conditions; core low-density plots will become the main force in transactions.

CITIC SEC released a research report stating that with the implementation of the presale-to-completed-sale policy, land planning conditions are undergoing corresponding reforms. Plots in more core locations with lower floor area ratios are expected to become the main force in land transactions, providing a foundation for companies to build high-quality new homes from the source and capture product premium. Policy optimizations such as fewer comprehensive plots, a bias toward "small and beautiful" areas, and installment payment of land costs will help improve corporate capital utilization efficiency and ease cash inflow pressure caused by delayed sales collections. Commercial land sold separately will have clearer property rights, providing a foundation for the invest-finance-manage-exit cycle and opening up space for quality commercial operations. The bank is bullish on the industry achieving both quality and price increases through building "good houses," on quality heavy-asset retail malls continuing to outperform overall retail sales on a same-store basis, and on growth in the asset-light commercial management business. CITIC SEC's main views are as follows: The new completed-sale policy has a significant impact on both sides of land supply and demand. For developers, the delayed sales collection cycle forces companies to reassess project IRRs. Companies become more cautious in investment and land acquisition, requiring superior land conditions to support quality product development and demanding higher gross margin expectations to offset declining turnover rates. For local governments, against the backdrop of overall contraction in the land market, they will choose to optimize the pace of land transfer fee collection to help developers balance cash flow pressure, and optimize project planning conditions to attract more capable developers, further strengthening regional differentiation in land. The bank combines sample city land listing and transfer data before and after the new policy to sort out the ongoing reforms in the land transfer market. Land planning floor area ratios maintain a downward trend; more low-FAR land is expected to be transferred after the new policy. According to Wind data, the average FAR of residential land in 100 cities remained above 2.2 before 2021, continuously declining to 1.89 by 2026 (as of September 27). The decline in FAR represents the development trend toward lower-density and improvement-oriented residential supply, and also means reduced value per project and shortened construction cycles, which helps improve corporate capital utilization efficiency under completed sales. Land supply is also expected to increase low-FAR projects to enhance attractiveness to developers. According to CREIS data on newly launched land in 70 sample cities during the first 23 days of September, the proportion of projects with FAR below 2.0 increased from 53% in August to 62%, with the average declining to 1.9; Guangzhou's Tianhe District plots AT1003083 and AT1003084 east of Daguang Road, which were relisted and transacted in September, had their FAR reduced from 2.3 at the time of 2025 land supply (unsold) to 1.95. Large-scale comprehensive land transfers are decreasing. The traditional approach of local governments expanding urban boundaries through large-scale comprehensive land parcel transfers no longer suits current urban development needs; after comprehensively considering development cycles, capital pressure, and future market risks, companies also prefer "small and beautiful" land in core areas with independent business formats and controllable areas. As of September 27, 2026, the average single-plot gross floor area of residential land transactions in 100 cities fell 43% from the 2020 peak to 58,000 square meters; for newly launched land in 70 CREIS sample cities in September after the new policy, the average and maximum values of land area and gross floor area all declined compared to land launched before the August new policy. More commercial land is expected to be transferred separately. Historically, much commercial land was transferred as part of comprehensive land parcels together with residential and commercial-residential land. Some developers lacked long-term planning for commercial land and did not possess quality management capabilities. After completing residential sales, the remaining held commercial properties had low operational quality, tying up corporate capital while being difficult to generate returns. With the development of the multi-tier REITs market, the self-circulation of invest-finance-build-manage-exit for commercial land has become possible. Separately transferred commercial land has clearer property rights, and the exit path after operational maturity is smooth; the renewal of industrial and commercial land use rights also highlights commercial management value and enhances sustainability. The bank believes that completed sales will accelerate the process of separate commercial plot transfers, commercial land planning conditions will continue to be optimized, and commercial operation management will simultaneously usher in broad incremental space. Companies are more cautious in land acquisition, and transaction differentiation is intensifying. The average premium rate for residential land transferred in 70 sample cities in September was 3.8%, a sharp decline from the average premium rate of 8.0% in August. After the new policy, 79% of land was transacted at the reserve price. Taking two plots both located in Jing'an District, Shanghai, with similar FARs and both involving Jianfa Real Estate's participation as an example, the N070302 unit 117a-09 plot transacted after the new policy had a premium rate of only 5%, while the N070402 unit 081a-08 plot transacted on June 30 before the new policy had a premium rate of 30%. Of course, companies are also willing to pay higher premium rates when certain conditions are met: 1) they already have project layouts in the same area with good returns; 2) newly transferred plots are significantly superior in planning conditions such as FAR; 3) after a long period without residential land auctions in core areas, newly transferred scarce plots allow companies to build benchmark projects, such as in Shanghai's Huangpu District and Shenzhen's Futian District Antuoshan area. Quality improvement drives housing price increases, while land prices may not rise in tandem. Under the old model, developers valued development scale, and pro-cyclical expanded investment led to intensified competition for land; during presale, homebuyers valued land location and planning expectations rather than housing quality itself. These factors together caused land price elasticity to exceed housing price elasticity. The bank believes that as the new completed-sale model advances, housing design, construction techniques, and maintenance management conditions will become more intuitively visible. Housing price increases will be driven more by product strength improvement. Combined with developers being more cautious in controlling land acquisition costs, the bank believes land prices may not experience broad increases as in historical housing price upcycles. Even if there are price increases, they will be more based on optimization of planning conditions. Risk factors: Detailed rules for completed-sale policies have not yet been introduced in some regions, and specific land transfer policies face uncertainty; if newly transferred land has better planning, the value of companies' existing undeveloped land may continue to be suppressed; companies' land acquisition strategies converge, and homogeneous competition may affect plot profit margins.