HuaFu Securities: Real estate construction and completion in May remain weak, expecting stronger policy efforts

According to the report released by Huafu Securities, based on data from the National Bureau of Statistics, from January to May, national real estate development investment was 3.6 trillion yuan, a year-on-year decrease of 10.7%. The newly started construction area of houses was 230 million square meters, a year-on-year decrease of 22.8%, and the completed construction area of houses was 180 million square meters, a year-on-year decrease of 17.3%. In the medium to long term, after more than three years of decline from the peak in 2021, the sales area of commercial housing is gradually entering the bottom range, and the market's sensitivity to policy easing has further increased. On one hand, the decline in interest rates is conducive to the recovery of home-buying willingness; on the other hand, the monetization of stockpiling and urban renewal helps restore home-buying capacity, thereby increasing the probability of stabilizing the real estate market's fundamentals, and is also expected to promote the recovery of post-cycle demand in real estate and alleviate credit risks for companies in the industry chain.

The main views of Huafu Securities are as follows:

According to data from the National Bureau of Statistics, from January to May, national real estate development investment was 3.6 trillion yuan, a year-on-year decrease of 10.7%. The newly started construction area of houses was 230 million square meters, a year-on-year decrease of 22.8%, and the completed construction area of houses was 180 million square meters, a year-on-year decrease of 17.3%. From January to May, the sales area of newly built commercial housing was 350 million square meters, a year-on-year decrease of 2.9%, of which the sales area of residential housing decreased by 2.6% year-on-year. The sales amount of newly built commercial housing was 3.4 trillion yuan, a year-on-year decrease of 3.8%, of which the sales amount of residential housing decreased by 2.8% year-on-year.

During the period from January to May 2025, the China Development Bank issued 575.1 billion yuan in loans related to urban renewal to support the renovation projects of old urban areas. Under the special loan support for the transformation of urban villages, Guangzhou has acquired over 6,000 units of existing commercial housing for resettlement by May. The first batch of housing vouchers in Nansha, Guangzhou, was issued, totaling over 50 million yuan. Wuhan is publicly soliciting opinions on adjusting and optimizing household registration policies, relaxing conditions for buying houses and settling down. Xi'an has introduced new policies for the real estate market, reducing down payment interest rates and allowing the use of housing provident fund for down payments. Changsha has adjusted housing provident fund business policies, relaxing loan conditions and increasing loan limits. Xiamen has adjusted policies for guaranteed commercial housing, lowering application thresholds and expanding the coverage of guaranteed housing. Huaihua, Hunan, has released a housing plan for 2025, piloting housing vouchers for resettlement alongside the sale of existing houses. Wenzhou has introduced a policy allowing the withdrawal of housing provident fund for down payments on second-hand housing purchases. Quzhou has introduced new real estate policies, implementing subsidies for improved housing purchases for families with multiple children.

In the short term: 1) Under the pressure of stabilizing growth, after the Politburo meeting in April, the emphasis on stabilizing real estate expectations was reiterated in July; 2) Against the backdrop of escalating global trade wars, the urgency to expand domestic demand and promote investment has further increased; 3) The bottom recovery of real estate credit is beneficial for the building materials sector.

In the medium to long term: 1) The interest rate reduction channel in Europe and the United States has been opened, and China's monetary and fiscal policy space is expected to be further expanded; 2) The Politburo meeting in September 2024 clearly proposed to promote the stabilization of the real estate market, after which policies on the demand side, such as the reduction of existing mortgage rates and deed tax, will continue to be strengthened, and it is expected that incremental policies such as urban renewal monetization and stockpiling will be ready to launch, fully demonstrating the upper-level determination to stabilize transaction volumes and housing prices in real estate.

1. After more than three years of decline from the peak in 2021, the sales area of commercial housing is gradually entering the bottom range, and the market's sensitivity to policy easing has further increased. On one hand, the decline in interest rates is conducive to the recovery of home-buying willingness; on the other hand, the monetization of stockpiling and urban renewal helps restore home-buying capacity, thereby increasing the probability of stabilizing the real estate market's fundamentals, and is also expected to promote the recovery of post-cycle demand in real estate and alleviate credit risks for companies in the industry chain Investment Advice: Huafu Securities believes that the decline in interest rates is conducive to the restoration of home buying willingness. The accumulation and monetization of urban renewal will help restore home buying capacity. The marginal recovery of home buying willingness and capacity expectations is expected to increase the probability of stabilizing the fundamentals of the real estate market, and is also expected to promote the recovery of post-cycle demand in real estate and alleviate credit risks for companies in the industry chain. Compared to the end of 2022, there is limited room for further deterioration in the fundamentals of the building materials sector in this round (the volume and price of real estate sales are at lower levels, and leading companies are less dependent on large B channels), and the valuation percentile is also lower than the previous low point. It is judged that both the fundamentals and valuations of the sector are expected to further recover.

Investment Targets: It is recommended to focus on three main lines: 1) High-quality blue-chip targets with excellent industry patterns that benefit from stock transformation, such as WEIXING NBM (002372.SZ), BEIXIN BUILDING MATERIALS (000786.SZ), and DEHUA TB (002043.SZ). 2) Oversold targets that benefit from the alleviation of credit risks on the B-side while still having significant long-term alpha attributes, such as SKSHU (603737.SH), ORIENTAL YUHONG (002271.SZ), and JIANGLANG HARDWARE (002791.SZ). 3) Leading cyclical building materials companies with bottomed fundamentals: recommended to focus on HUAXIN CEMENT (600801.SH), CONCH CEMENT (600585.SH), CJS (600176.SH), and QIBIN GROUP (601636.SH).

Risk Warning: The effectiveness of real estate policies may be less than expected, upstream real estate companies' credit risks may further transmit, and raw material prices may rise