Huatai Securities: It is expected that second-tier and lower-tier cities will have the opportunity to experience comprehensive relaxation. Optimistic about core regional abundant housing demand for real estate companies.

According to Dolphin Research, Huatai Securities has released a research report stating that after the comprehensive cancellation of purchase restrictions in Jiaxing, Dalian, and Shenyang, Nanjing officially announced the relaxation of restrictions in Xuanwu District, Qinhuai District, Jianye District, and Gulou District on the evening of September 7th. This means that purchase restrictions are fully lifted throughout Nanjing, making it the fourth city to fully lift restrictions since the end of August, and also the first second-tier city to do so. Since July, the Ministry of Housing and Urban-Rural Development, the central bank, and other ministries and commissions have frequently voiced their support for relaxing demand-side measures, strengthening the determination to stabilize the real estate market. The bank predicts that second-tier and lower-tier cities are expected to fully relax restrictions, while first-tier cities may see partial easing, forming a combined force with other policies to stabilize expectations for housing prices and demand. Huatai Securities' main points are as follows: Progressive relaxation of purchase restrictions, Nanjing's full-scale lifting sets the tone for second-tier cities The relaxation of purchase restrictions in cities is a process that progresses from specific areas to the entire city. Taking Nanjing as an example, since April 2022, purchase restrictions have been relaxed eight times, starting from Liuhe and Lishui districts, then spreading to industrial clusters, and finally covering the entire city. The threshold for home purchases has been gradually lowered, from reducing the length of social security requirements for non-local residents, to relaxing restrictions for families with two or more children and elderly people over 60 years old, and finally removing restrictions for all. Since September, two other second-tier cities, Dalian and Shenyang, have also fully lifted purchase restrictions, but not all at once. Dalian optimized its purchase restriction policy in May 2022, retaining only three restricted areas, while Shenyang conducted a round of optimization for restricted areas in March this year. Second-tier cities have already seen frequent relaxation of purchase restrictions for specific areas and population groups. Now, with Nanjing fully lifting restrictions as a strong second-tier city, it sets the tone for other cities. Weak sales are an important reason for the withdrawal of purchase restrictions The accelerated relaxation of purchase restrictions in cities is aimed at stabilizing demand. Looking at the recent sales situation in second-tier cities that have fully relaxed restrictions, taking Nanjing as an example, despite the gradual relaxation of restrictions since April 2022, with policies being adjusted in May, June, December, and May 2023, the stimulating effect of these policies has gradually diminished, and the market transaction volume has not reversed. Since July 2021, Nanjing has only seen four months of year-on-year growth in new home sales area. After achieving a pulse-like growth in the first quarter of this year, the market quickly declined. Dalian and Shenyang have experienced similar situations, with cumulative sales area year-on-year declines of 43%, 56%, and 42% respectively from June to August, significantly higher than the 28% decline in the 30 cities. The continued low industry prosperity is an important reason for the significant relaxation of purchase restrictions. Historically, the withdrawal of purchase restrictions has generally marked the bottom of the industry Historically, the complete withdrawal of purchase restrictions in key cities has been an important part of a series of policies to stabilize the market. Looking back to 2014, the peak period for lifting restrictions in second-tier cities was in September, and Nanjing, Dalian, and Shenyang all lifted restrictions during this time. With the implementation of the September 30th policy, the industry's fundamentals were confirmed. Specifically, in the month following the policy implementation, the year-on-year growth rate of sales area in these three cities narrowed, with declines of 29%, 39%, and 3% respectively compared to the month of policy release. After that, Nanjing and Shenyang gradually moved out of the negative growth range. However, significant year-on-year sales growth in these three cities did not start until March 2015, half a year later. The clear upward trend in the year-on-year growth of average prices usually lags behind by half a year, typically occurring in September 2015. Overall, the comprehensive lifting of purchase restrictions combined with policy measures can confirm the market bottom, but it will still take some time for the fundamental trend to turn upward. Further policy measures are expected to benefit real estate companies with abundant inventory in core areas The complete removal of purchase restrictions signifies further policy measures, and the bank is optimistic about the supportive effect of these policies on the fundamentals. Companies with ample reserves in core cities are expected to benefit. Risk Warning: Uncertainty in industry policies; downward trend in fundamentals; operational risks for some real estate companies.