Core Viewpoint - Morgan Stanley reports that second-hand housing prices in major mainland cities continued to decline month-on-month in December last year, but the rate of decline has slowed. The year-on-year sales decline has also moderated. The firm anticipates that housing policies may remain low-key in the coming months, while high listing volumes of second-hand homes may suppress buyer sentiment, putting pressure on housing sales and prices [1]. Group 1: Market Trends - The downward trend in the real estate market is expected to continue this year, albeit at a slower pace, with a projected year-on-year decline in second-hand home prices in the high single digits, compared to a 13.7% decline in 2025 [1]. - If the macro environment remains resilient, housing prices in first-tier and major second-tier cities may stabilize in the second half of 2027 [1]. Group 2: Company Insights - Morgan Stanley maintains a cautious outlook on the recovery of the real estate market but anticipates a further divergence in stock performance between the overall industry and high-quality companies with reliable self-rescue capabilities this year [1]. - The firm is optimistic about robust mall operators such as China Resources Land (01109) and New World Development (601155.SH), believing they will benefit from the emphasis on consumption in the 14th Five-Year Plan and strong tailwinds from REITs policies [1]. - Morgan Stanley also favors C&D International Group (01908) and China Overseas Land & Investment (00688), as their optimized land reserves will support profits and drive a return to positive earnings growth [1].

Investment Rating - The report maintains a "Buy" rating for several companies in the commercial real estate sector, including Longfor Group, China Overseas Development, Link REIT, and others [9][26]. Core Insights - The introduction of commercial real estate REITs (C-REITs) marks a significant shift in China's real estate development model, with policies aimed at enhancing liquidity and asset valuation [1][5]. - The new policies are expected to accelerate the scale of C-REITs, particularly in the commercial real estate sector, which is seen as having the most substantial growth potential [4][25]. - The report emphasizes the importance of expanding the asset base and optimizing regulatory mechanisms to attract more investment and enhance market efficiency [3][4]. Summary by Sections Investment Rating - The report recommends a "Buy" rating for Longfor Group, China Overseas Development, Link REIT, and several other companies, indicating strong growth potential in the commercial real estate sector [9][26]. Policy Background - The transformation of the REITs system is driven by three main factors: revitalizing existing assets, promoting pilot experiences, and enhancing the quality of REITs to meet market demands [2][11]. Policy Core - The core of the new policies focuses on expanding the asset base and increasing efficiency, which includes breaking the self-holding restrictions for original rights holders and enhancing market-driven pricing mechanisms [3][12]. Impact and Outlook - The report identifies three key factors that could drive the rapid scaling of REITs: increased motivation for original rights holders, a broader range of participating funds, and improved efficiency in the review and management processes [4][19]. - Commercial real estate is expected to become the focal point for expansion, with the potential for significant growth in this sector [24][25]. Investment Recommendations - The report suggests investing in companies with a strong presence in commercial real estate and management advantages, such as Longfor Group, China Overseas Development, and others [5][26].

Investment Rating - The report maintains an "Outperform" rating for the real estate industry [8] Core Insights - The report emphasizes the financial attributes of real estate, highlighting its significant impact on the macro economy and the necessity for strong policy support from the central government [16][18] - It suggests that policies should be implemented in a decisive manner to stabilize market expectations, avoiding gradual measures that have proven ineffective [17] - The report anticipates a shift towards a new model of "affordable housing + quality housing + services," with an acceleration in the acquisition of existing properties to alleviate inventory pressure [18] Summary by Sections 1. Market Trends - The real estate market is expected to stabilize with policies that support both demand and supply, particularly in major cities where restrictions may be eased [16][18] - The report notes a significant decline in new and second-hand housing transaction volumes, with year-on-year decreases of 22.39% and 28.04% respectively [72] 2. Stock Market and Credit Bonds - The A-share real estate sector underperformed the market, with a weekly decline of 0.69%, trailing the broader market by 0.10 percentage points [21][22] - The issuance of real estate credit bonds totaled 1.514 billion yuan, with a net financing amount of -2.527 billion yuan [21] 3. REITs Market - The REITs index experienced a decline of 0.36%, with the property REITs index down 0.39% and the operating rights REITs index down 0.33% [41][54] - The total transaction volume for REITs was 0.551 billion yuan, reflecting a significant decrease of 59.30% compared to the previous period [56] 4. Land Market - The report indicates a decrease in land supply across major cities, with a 66.43% drop in supply and a 132.09% increase in transaction area, alongside a rise in premium rates [5] 5. Policy Outlook - The report outlines expectations for more robust housing policies in 2026, including the removal of restrictive measures and a focus on meeting diverse housing needs [18][19]

Group 1 - The real estate sector saw significant capital inflow on the first trading day of 2026, with the only ETF tracking the CSI 800 Real Estate Index (159707) rising by 1% and experiencing a net subscription of 200 million shares, indicating a surge in trading activity [1][5] - Leading real estate companies such as Poly Developments, New Town Holdings, and China Merchants Shekou all saw their stock prices increase by over 3% [1][5] - A commentary article published in the January issue of "Qiushi" magazine emphasized the need to improve and stabilize expectations in the real estate market, signaling the central government's heightened focus on managing market expectations [2][7] Group 2 - Starting January 1, the interest rates for existing housing provident fund loans and commercial loans will be lowered, with a specific reduction of 0.25 percentage points for loans issued before May 8, 2025 [2][7] - Analysts from Ping An Securities believe that the policy environment in 2026 remains promising, with a focus on mortgage rate adjustments and urban renewal progress, suggesting a new product iteration cycle is underway [2][7] - Huatai Securities recommends prioritizing investments in real estate stocks that possess "good credit, good cities, and good products," and emphasizes the importance of companies that can manage cash flow effectively during market adjustments [8] Group 3 - The real estate ETF (159707) is noted for its concentration on top-tier companies, with over 90% of its top ten constituent stocks, indicating a strong focus on central state-owned enterprises [3][8] - The ETF is designed to passively track the CSI 800 Real Estate Index, which was established on December 31, 2004, and published on December 21, 2012, reflecting a significant historical performance [3][9] - In the context of industry consolidation, leading real estate firms are expected to exhibit greater resilience and potential for growth [3][8]

Core Viewpoint - Morgan Stanley's report indicates that if the macro environment remains stable and resilient, housing prices in first-tier and major second-tier cities are expected to stabilize in the second half of 2027 [1] Group 1: Company Insights - Morgan Stanley is optimistic about China Resources Land (01109) and New City Holdings (601155.SH) as stable mall operators, benefiting from the emphasis on consumption in the 14th Five-Year Plan and strong policy support for Real Estate Investment Trusts (REITs) [1] - The report also highlights that C&D International (01908) and China Overseas Development (00688) have land reserves that will support their profit margins, driving earnings back to positive growth [1]

Group 1 - The core viewpoint of the article indicates that if the macro environment remains stable and resilient, property prices in first-tier and major second-tier cities are expected to stabilize in the second half of 2027 [1] - Morgan Stanley is optimistic about China Resources Land (01109) and New World Development (601155.SH) as stable mall operators benefiting from the emphasis on consumption in the 14th Five-Year Plan and strong policy support for Real Estate Investment Trusts (REITs) [1] - The report also favors C&D International (01908) and China Overseas Land & Investment (00688), noting that their land reserves will support profit margins and drive earnings back to positive growth [1]

Investment Rating - The report maintains an "Overweight" rating for the real estate development and services sectors [7]. Core Insights - The central government emphasizes the importance of managing expectations in the real estate market, indicating a proactive approach to stabilize the market [2][3]. - The report highlights that while the traditional real estate development model has reached its limits, the sector remains a crucial foundation for the national economy, with significant demand still to be released [4]. - The report suggests that if policies continue to address expectations effectively, it could accelerate market stabilization [5]. Summary by Sections Investment Opportunities - The report recommends investing in "three good" real estate companies, which are characterized by good credit, good cities, and good products, including companies like China Overseas Development and Longfor Group [5]. - It also highlights companies with strong operational capabilities that can manage cash flow during market adjustments, such as New Town Holdings and Longfor Group [5]. - Companies benefiting from the recovery of the Hong Kong market, like Sun Hung Kai Properties, are also recommended [5]. Policy Management - The report stresses the need for maintaining policy strength, effective supply management, and enhancing information and public opinion guidance to stabilize market expectations [3]. - It notes that policies should align with market expectations and be implemented decisively to avoid a situation where the market and policies are in conflict [3]. Market Dynamics - The report indicates that the real estate market is still adjusting, with significant declines in sales and prices, and mentions the potential for bankruptcies among some companies [2]. - It emphasizes that the real estate sector is closely linked to financial security and household wealth, underscoring its importance in the broader economic context [2]. Company Performance - The report provides detailed performance forecasts for several key companies, adjusting earnings per share (EPS) estimates for various firms based on market conditions and operational performance [12][13][14]. - For instance, Longfor Group's EPS estimates for 2025-2027 have been adjusted to 0.52, 0.68, and 1.04 yuan, reflecting a downward revision due to expected profitability challenges in its development business [12]. - China Overseas Development's EPS estimates have been adjusted to 1.39, 1.48, and 1.60 yuan for the same period, indicating a more optimistic outlook based on its strong market position and project pipeline [12].

Core Insights - The report emphasizes the importance of stabilizing expectations in the real estate market, highlighting the need for proactive measures to shorten adjustment periods and smooth market fluctuations [5][14][17] - The article from "Qiushi" magazine outlines the critical role of real estate in the national economy and stresses the necessity of maintaining policy strength to align with market expectations [5][14][16] Section Summaries 1. Policy Environment During New Year - The article in "Qiushi" magazine discusses the current phase of the real estate market, indicating a shift from housing shortages to a balance in supply, with a focus on quality over quantity in housing demand [13][15] - It highlights the financial asset nature of real estate, emphasizing its significance in stabilizing the economy and the need for effective expectation management [14][15] 2. Transaction Performance: New and Second-Hand Housing - New housing transactions during the New Year period saw a significant decline, with a daily average of 15.66 million square meters sold across 32 cities, down 44.8% year-on-year [19][21] - In contrast, second-hand housing transactions showed relative stability, with an average of 2,676 units sold daily across 80 cities, a slight decrease of 1.1% year-on-year [26][28] 3. Market Trends and Insights - The real estate sector's performance was weak, with the SW real estate index down 0.7%, underperforming the CSI 300 index by 0.1 percentage points [5][19] - The report notes that the PB valuation for major developers is at 0.45x, indicating low market expectations for price recovery [5][19] 4. Company Valuation and Financial Analysis - The report provides a detailed valuation analysis of key companies in the real estate sector, indicating a "Buy" rating for several firms based on their projected earnings and valuation metrics [6][19] - Companies like Vanke A and China Overseas Development are highlighted for their potential upside based on current market conditions and valuations [6][19] 5. Future Outlook - The report suggests that despite current challenges, there remains significant potential for growth in housing services, second-hand transactions, and real estate asset management, with estimates indicating a need for 10 to 14.9 million new homes annually [16][18] - It emphasizes the importance of maintaining policy strength and aligning it with market expectations to foster recovery in the real estate sector [16][18]

Investment Rating - The report maintains a "Positive" rating for the real estate and property management sectors, highlighting optimism for the recovery of core cities and the potential for value reassessment in commercial real estate [2][28]. Core Insights - The report identifies two major opportunities: the rise of favorable policies for housing and the strong performance of quality commercial enterprises during a monetary easing cycle, which could lead to a reassessment of consumer-oriented commercial real estate assets [2][28]. - The report emphasizes the importance of effective policy management to stabilize market expectations and suggests that policies should be decisive rather than incremental to avoid market-political conflicts [28][29]. Industry Data Summary New Home Transactions - In the week of December 27 to January 2, new home transactions in 34 key cities totaled 4.067 million square meters, reflecting a week-on-week increase of 10.8%, with first and second-tier cities up by 12.7% and third and fourth-tier cities down by 15.5% [3][6]. - December saw a year-on-year decline of 26% in new home transactions across 34 cities, with first and second-tier cities down by 25.4% and third and fourth-tier cities down by 30.6% [6][7]. Second-Hand Home Transactions - In the same week, second-hand home transactions in 13 cities totaled 1.1 million square meters, a week-on-week decrease of 10.4%, with December's cumulative transactions down by 26.8% year-on-year [11][12]. Inventory and Market Dynamics - The report notes a decrease in new home inventory, with 15 cities seeing a total of 89.401 million square meters available for sale, down 1.4% week-on-week. The average months of inventory turnover is 21.8 months, a decrease of 0.9 months [22][27]. Policy and News Tracking Macro Policies - The Ministry of Finance and the State Administration of Taxation announced a reduction in the value-added tax rate for personal housing sales, with properties sold within two years subject to a 3% tax and those sold after two years exempt from tax [28][29]. - The report highlights the importance of monitoring key indicators in the real estate market, emphasizing that housing is a critical asset for families and directly impacts public interest [28][29]. Company Developments - China Resources Land has established its first Pre-REITs fund, focusing on quality commercial real estate projects, with a fund size of 300 million yuan [35]. - CIFI Holdings has completed its debt restructuring, marking a significant milestone for the company [35].

Investment Rating - The report maintains a "Positive" rating for the real estate and property management sectors, highlighting optimism for the recovery of core cities and the potential for value reassessment in shopping centers [2][30]. Core Insights - The report emphasizes the importance of the real estate sector as a significant contributor to the national economy and household wealth, advocating for robust policy measures to stabilize market expectations [30]. - It identifies two major opportunities: the rise of favorable policies for "good housing" and the strong performance of quality commercial enterprises during a monetary easing cycle, which could lead to a revaluation of consumer-oriented commercial real estate assets [2][30]. Industry Data Summary New Housing Transactions - In the week of December 27 to January 2, new housing transactions in 34 key cities totaled 4.067 million square meters, reflecting a week-on-week increase of 10.8% [2][3]. - Year-on-year, December transactions in these cities decreased by 26%, with first and second-tier cities down 25.4% and third and fourth-tier cities down 30.6% [2][6]. Second-Hand Housing Transactions - In the same week, second-hand housing transactions in 13 cities totaled 1.1 million square meters, a decrease of 10.4% from the previous week [11]. - Cumulatively, December transactions were down 26.8% year-on-year, with a notable decline in third and fourth-tier cities [11][7]. Inventory and Market Dynamics - The report notes a decrease in available housing inventory, with a total of 89.401 million square meters available in 15 cities, down 1.4% week-on-week [23]. - The average months of inventory turnover for the last three months is reported at 21.8 months, indicating a slight improvement in market absorption [23]. Policy and News Tracking Macro Policies - Recent policy changes include a reduction in the value-added tax rate for personal housing sales, aimed at stimulating market activity [30][31]. - The report highlights the need for policies that align with market expectations to avoid creating a tug-of-war between market forces and regulatory measures [30]. Company Developments - Notable company activities include the establishment of a Pre-REITs fund by China Resources Land, aimed at investing in quality commercial real estate projects [36][38]. - CIFI Holdings has completed its debt restructuring, marking a significant milestone in its financial recovery efforts [36].