According to Zhitong Finance APP, Ping An Securities released a research report stating that the real estate industry's "stop falling and stabilize" path will follow "good products - core areas of first and second-tier cities - national economic stabilization - national real estate market stabilization - investment stabilization", while low-tier regions (second-tier suburbs + third and fourth-tier cities) are hindered by high inventory, so their stop of decline will be relatively delayed. It is expected that real estate companies with lighter historical burdens (less land acquisition at peak periods or focusing primarily on core areas) and still capable of acquiring land will likely benefit from the stabilization of core cities + high-quality product segments, relaxation of price limits + optimization of land auction (which essentially means a decrease in land prices) leading to improvements in gross margin, emerging as individual stock trends.

The main points of Ping An Securities are as follows:

Land acquisition from 2020 to 2021 sank into low-tier cities and second-tier suburbs, restricting the gross margin performance of real estate companies.

Due to the heated market transactions in 2020 and 2021, combined with the concentrated land supply launched in 22 cities in 2021, limited capacity in core areas of first and second-tier cities, and a situation where land auctions saw more bidders than available plots, some third and fourth-tier cities and second-tier suburbs, which had relatively good fundamentals and development prospects, undertook the overflow of demand for land acquisition from real estate companies, especially in the CNI Yangtze Index and Greater Bay Area metropolitan circle. According to the data from the China Index Academy, the proportion of land transaction numbers in third and fourth-tier cities among the 300 cities nationwide increased rather than decreased in 2020 and 2021, and the transactions in typical second-tier cities mostly occurred in peripheral suburbs. During this period, there were numerous high-priced land auctions in the suburbs, county-level cities, and even third and fourth-tier cities under second-tier cities, and further auction requirements such as "self-holding" during land auctions raised the acquisition costs for real estate companies, while later, as the real estate market cooled, companies were forced to "exchange price for volume", suppressing their profit margins.

Typical urban suburbs have accumulated inventory and have a longer de-stocking cycle, and the stop of decline is expected to lag behind the improvement of core area sectors and good products.

According to data from the China Index Academy, the average de-stocking cycle in typical urban suburbs is longer than that in the main urban areas, facing a longer adjustment cycle. From the storage announcements and landed projects across various locations, in first-tier cities, Guangzhou has recently expanded its storage range from previously remote areas like Zengcheng to the entire city; in second-tier cities, the main areas of storage are often in suburbs with high inventory, such as projects in Jimo District of Qingdao, Huangpi District of Wuhan, and Binhai New Area of Tianjin.

To reduce high inventory in the suburbs, one needs to further exchange price for volume, using "high cost-performance ratio" to increase project turnover; two, adjust the relevant planning of newly transferred or already transferred land to create more competitive projects for market launch and sales; three, intensify storage efforts. According to CRIC data, looking at the price trends in various sectors, the resilience of suburban/demand-driven sectors is noticeably weaker, while since the beginning of the year, high-end improvement projects in core areas are still experiencing "supply not meeting demand" at openings. It is expected that in this round of the industry's "stop falling and stabilize" path, the stabilization and rebound in the suburbs may lag behind that of high-quality residences in core areas.

Currently, many fourth-generation residential projects are still performing well in terms of sales despite the sluggish housing market, driving localized "high heat" land transfers for some "fourth-generation residences." High-quality residential land and project transactions have shown signs of stabilization. In addition, the implementation of tax reduction measures has been announced, with the Ministry of Finance raising the area standard that currently enjoys a 1% deed tax rate from 90 square meters to 140 square meters; after the cancellation of the non-ordinary residential standards in Beijing, Shanghai, and Shenzhen, non-ordinary residences held for more than two years are also exempt from value-added tax (previously only ordinary residences were exempt). This is believed to be a marginal bullish factor for second-hand housing and non-ordinary residential improvement customer groups in first-tier cities.

Investment advice:

1) Real estate companies with lighter historical burdens and optimized inventory structures such as greentown china (03900), c&d intl group (01908), china overseas (00688), china merchants shekou industrial zone holdings (001979.SZ), hangzhou binjiang real estate group (002244.SZ), yuexiu property (00123), china res land (01109), poly developments and holdings group (600048.SH), etc.;

2) Real estate companies undergoing valuation recovery such as china vanke co.,ltd. (000002.SZ), gemdale corporation (600383.SH), seazen holdings (601155.SH), etc.;

3) At the same time, it is suggested to pay attention to leading enterprises in specific fields such as brokerage (ke holdings-W (02423)), property management (china ovs ppt (02669), poly ppt ser (06049), china merchants property operation & service (001914.SZ)), and construction agency (greentown mgmt (09979)).

Risk warning: Risks of continued weakness in housing market transactions; liquidity issues in certain real estate companies fermenting, with chain reactions exceeding expectations; risks of policy improvements and implementation falling short of expectations.