<h2>Summary</h2>
The purchase restriction policy has played a positive historical role, but we believe that the current strict purchase restriction cannot meet the requirements of stable development of the real estate market in the face of significant changes in supply and demand.
We believe that in the medium term, purchase restrictions in cities outside the first-tier cities are expected to be lifted or significantly optimized, and there is also the possibility of implementing zoning optimization policies in the first-tier cities. The policies of not recognizing houses for loan applications and reducing the down payment ratio for first-time buyers have had a significant impact, and signs of a bottoming out in the real estate markets of first- and second-tier cities have emerged. The policy toolbox still offers a wide range of options.
We believe that housing prices will not continue to decline unilaterally, and the market is expected to recover within the year. In the medium to long term, the construction of allocation-based affordable housing and the transformation of urban villages are expected to inject new momentum into the market, providing real estate development companies with new business development opportunities. We believe that this is not only a turning point in the cycle, but also the starting point for the real estate industry to move towards a sustainable development model.
<h2>Recent Intensive Policies in Many Places, Optimizing Requirements for Purchasing Commercial Housing</h2>
Since August 25th, according to disclosures on various local government websites, cities such as Jiaxing, Fuzhou, Tianjin, Shenyang, Dalian, and Nanjing have successively introduced supportive policies to lower the threshold for purchase restrictions and narrow the scope of restrictions.
Of particular note is the notice issued on September 8th by Nanjing City's Xuanwu District, Qinhuai District, Jianye District, and Gulou District, which states that purchasing commercial housing within these four districts no longer requires a purchase certificate (according to the &#34;Nanjing Release&#34; WeChat official account). This is the first time that Nanjing, a key second-tier city, has lifted the restrictions on purchasing commercial housing since the reintroduction of purchase restrictions in September 2016.
According to data from China Index Holdings, after the comprehensive cancellation of purchase restrictions on commercial housing in Nanjing in September 2014, the sales amount of commercial housing in Nanjing increased by 65.7% year-on-year in 2015.
▍Since 2010, purchase restrictions have played a positive historical role in curbing excessive increases in housing prices. However, we believe that continuing to impose strict purchase restrictions cannot meet the requirements of stable development of the real estate market in the face of significant changes in supply and demand.
In April 2010, due to the continuous rise in housing prices, the State Council issued the &#34;Notice on Promoting the Stable and Healthy Development of the Real Estate Market&#34; (New Ten Measures), which for the first time proposed that &#34;local people's governments can, based on actual conditions, adopt temporary measures to limit the number of housing units that can be purchased within a certain period of time.&#34; Subsequently, first-tier cities such as Beijing introduced specific purchase restriction measures, followed by second-tier cities. In January 2011, the State Council issued the &#34;Notice on Further Improving the Regulation of the Real Estate Market&#34; (New Eight Measures), which clearly stated the requirements for housing purchase restrictions in municipalities directly under the central government, separately listed cities, and provincial capitals. The intensity of purchase restrictions nationwide reached its highest level, effectively curbing excessive increases in housing prices.
In September 2011, the monthly sales amount of commercial housing nationwide showed a year-on-year negative growth. In 2014, adjustments to real estate purchase restrictions began in Hohhot in June, and by the end of 2014, major cities outside the first-tier cities had introduced a series of measures to optimize purchase restrictions, which, together with other policies, reversed the downward trend in the industry's fundamentals.
By 2016, the strict implementation of the purchase restriction policy entered a new phase, until 2023 when the market began to undergo new changes. We believe that as an administrative measure, the purchase restriction is no longer in line with the significant changes in the supply-demand relationship. We believe that in the medium term, purchase restrictions in cities outside the first-tier cities are expected to be lifted or significantly optimized, and there is also the possibility of optimizing purchase restrictions in the first-tier cities through zoning.
▍The marginal impact of policies such as &#34;recognizing houses but not loans&#34; and reducing the down payment ratio for first-time homebuyers is evident. The policy toolbox offers options for relaxing purchase restrictions, and it is expected that the market will gradually recover throughout the year.
The optimization of this round of purchase restriction policy began with the announcement of 19 supportive policies, including the implementation of optimized purchase requirements, in Zhengzhou in early 2022, which supported regional real estate demand.
As of September 8th, we have found that out of 22 hot cities, 18 cities still have purchase restrictions, and the restrictions in Beijing, Shanghai, and Shenzhen not only cover the entire cities but also have high thresholds. In August, the number of newly signed contracts for 42 sample cities in the new housing market decreased by 25.0% year-on-year, and the number of contracts for 14 sample cities in the second-hand housing market decreased by 3.5%.
After the introduction of policies such as &#34;recognizing houses but not loans&#34; and reducing the down payment ratio in September, their role in stimulating the demand for improvement in first- and second-tier cities became evident. For example, according to data from China Securities Journal citing the research institute of CRIC, on September 2nd and 3rd alone, the number of second-hand housing transactions in Beijing reached 2,600 units, doubling compared to before the policy was implemented.
Of course, the previous policies mainly encouraged selling old homes to buy new ones, and trading up to larger properties, so the listing prices of second-hand homes in major cities have increased to varying degrees. We believe that as more policies, such as the relaxation of purchase restrictions, continue to be implemented, the real estate markets in more regions will gradually stabilize, and the average selling prices in first- and second-tier cities are expected to stop falling in the fourth quarter, leading to a gradual recovery of the national property market throughout the year.
<h2>Risk Factors:</h2>
The risk of real estate support policies being implemented at a slower pace or with less intensity than expected, and the risk of limited marginal improvement in some lower-tier cities' policies; the risk of real estate companies' profitability.
▍The era of stable Chinese real estate market and sustainable development of the industry chain has arrived.
In the short term, we believe that policy tools, including the relaxation of purchase restrictions, will continue to be used, and housing prices will not continue to decline unilaterally.
In the medium to long term, the construction of allocation-based affordable housing and the transformation of urban villages are expected to inject new momentum into the market, providing real estate development companies with new business development opportunities.
We believe that this is not only the moment when the cycle hits bottom but also the starting point for the real estate industry to move towards sustainable development. We expect the industry to start recovering from September, and we also believe that policies, including the relaxation of purchase restrictions, will have substantial effects. We are optimistic about leading companies that are relatively advanced in terms of resources, credit, and capabilities.

China Securities believes that in the medium term, purchase restrictions in cities outside the first-tier cities are expected to be lifted or significantly optimized, and there is also the possibility of implementing zoning optimization policies in first-tier cities. The policies of not recognizing houses for loans and reducing the down payment ratio for first-time homebuyers have had a noticeable impact. There are signs of the real estate market in first- and second-tier cities bottoming out, and the policy toolbox still offers a wide range of options.

The scale and outlook of the relaxation of purchase restrictions