The strengthening of "supply and demand" policies is reshaping the industry's fundamentals, with the 15th Five-Year Plan, loan interest subsidies, and housing provident fund management plans continuing to drive the demand side. Can the real estate sector's "strong policy" change the current "weak demand" situation?
According to Zhitong Finance APP, the real estate industry has entered the stock era, with both development volume and sales volume declining sharply, companies suffering severe losses and being passively cleared out. On the policy front, efforts are being made on both supply and demand sides, and high-quality development of real estate has become a key focus of the 15th Five-Year Plan. The China Securities Regulatory Commission recently formulated the "Opinions on Capital Market Support for Building a New Model of Real Estate Development," combined with nationwide loan interest subsidies, giving rise to calls that the industry's fundamentals have reached a turning point. Based on multiple positive factors for the industry, the real estate sector has shown signs of launching, but different markets have diverged.
A-shares have remained strong. Since September 17, China Vanke Co.,Ltd. (HKEX: 02202) surged over 25%, and Yunnan Nantian Electronics Information Co.,Ltd. (SZSE: 000560) still had upward momentum after three consecutive limit-up days. Hong Kong stocks showed weak upward momentum, with most targets falling back after two days of gains. After pulling back, China Vanke's gains were less than 10%, while Sunac China almost returned to its original level. Hong Kong stocks seemed unconvinced. However, the real estate industry's valuation has entered a bottom zone. So, is this rally a flash in the pan or a sign of an industry turning point?
The Policy Bottom Has Appeared, and the Industry May Shift from Bottoming Out to a Pro-Cyclical Phase
According to Zhitong Finance APP, since the full implementation of the "Three Red Lines" in 2021, deleveraging, reducing debt ratios, and tightening financing coincided with the pandemic. Housing demand was sluggish, rigid demand for marriage homes continued to decline, and the real estate industry entered a recession period, with industry sales and sales area and other indicators declining across the board.
From 2022 to 2025, commercial housing sales fell by about 40%, with "both volume and price declining." In 2026, the double-digit decline trend continued, but the downward trend has somewhat stabilized.
Data source: publicly disclosed data. From January to August 2026, real estate development investment fell 19.9%, of which residential investment fell 19.7%, new housing construction area fell 24.8%, completed area fell 23.7%, commercial housing sales area was 499 million square meters, down 12.1%, sales amount was 4.75 trillion yuan, down 13%, and the average unit price was 9,500 yuan per square meter. As of August, the area of newly built commercial housing for sale was 753 million square meters, down 1.1%, maintaining a relatively slow destocking pace.
In fact, looking back over the past few years, the recession cycle has washed away the sand. Companies like Evergrande went bankrupt or were delisted, and most leading real estate companies are still in the bankruptcy restructuring stage. Although the six-year downturn cycle has not yet formed a "comprehensive stabilization," the development trend of the real estate industry shows signs of a turning point. The policy bottom has appeared, with continuous efforts on both supply and demand sides. Coexisting with fundamental adjustments, the bottoming-out cycle is expected to gradually shift toward a pro-cyclical phase.
The national 15th Five-Year Plan underpins the basic foundation of the real estate industry. On August 28 of this year, the Ministry of Housing and Urban-Rural Development, the People's Bank of China, the National Financial Regulatory Administration, and other departments issued a series of new real estate policies, continuously releasing a combination of measures on both supply and demand sides. For example, the China Securities Regulatory Commission formulated the "Opinions on Capital Market Support for Building a New Model of Real Estate Development." The "trade-in" program and loan interest subsidy plans have covered the entire country. At the end of September, the newly revised "Regulations on the Management of Housing Provident Funds" officially took effect. At the same time, the push for the completed housing sales model is accelerating, with "pay with one hand, receive the property with the other" comprehensively improving the supply and demand landscape.
The Turning Point Is Yet to Be Confirmed, and Leading High-Quality Real Estate Companies Are "Stronger Stay Stronger"
From the current industry situation, the real estate industry is severely differentiated. From the 2026 interim financial reports, most real estate companies' revenues continued to decline by double digits, with overall losses but somewhat narrowed. In the real estate industry, only by being "stable" can one go far. "The strong stay strong" — real estate companies with low debt ratios and central or state-owned enterprise backgrounds have shown resilience. Represented by Poly Developments And Holdings Group Co.,Ltd. (SSE: 600048), CHINA RES LAND (HKEX: 01109), and CHINA OVERSEAS (HKEX: 00688), they maintained profitability, with interim shareholder net profits of 9.842 billion yuan and 7.03 billion yuan respectively. Among them, China Overseas Development's revenue grew against the trend, up 17.28% year-on-year, with a shareholder net profit margin of 7.2%.
In terms of full-caliber sales amount, only Poly Developments, China Overseas Development, and China Resources Land had sales exceeding 100 billion yuan in the first half. These three companies are all leaders in debt management in the industry, with China Overseas Development and China Resources Land having the lowest period-end debt-to-asset ratios excluding advances in the industry.
However, after six years of industry adjustment, most key real estate companies can still maintain a cash-to-short-term-debt ratio above 1.0 times. As financing policies have become more accommodative, real estate companies have taken the opportunity to extend debt maturity, with short-term interest-bearing debt accounting for less than 35% for most key companies.
Facing downward pressure in the industry, developers are cautious about acquiring land. Central and state-owned enterprises with ample cash flow are the main buyers. In the first half, Poly Developments had the highest land acquisition amount, followed by China Resources Land, continuously enriching high-quality land reserves. New projects are concentrated in core cities and core areas, gaining greater competitive advantages in the industry recovery cycle.
As of the end of June 2026, among real estate companies that have disclosed data, the ones with the largest land reserve construction areas are China Vanke, China Resources Land, and China Overseas Development. It is worth mentioning that based on performance resilience and sustained profitability, the market values of the three high-quality real estate companies — Poly Developments, China Resources Land, and China Overseas Development — have been little affected by industry cycles. Take China Resources Land for example: its market value has risen over 5% this year and over 25% in the past two years. In contrast, highly indebted real estate companies like Sunac China have halved this year, and their current market value has dropped 99% from 2020. It is clear that "the strong stay strong" is very evident across all indicators in the real estate industry.
So, when will the real estate industry reach a turning point? Pro-cyclical phases are needed to obtain excess returns. Referring to the lithium battery industry, it entered an adjustment period in 2022, with "volume and price" hitting bottom in the first half of 2025 and the sector falling over 70%. Industry leaders Ganfeng and Tianqi Lithium were no exception. However, in the second half of 2025, the pro-cyclical phase began, lithium carbonate prices started to rise, and the industry that had been losing money for years began to profit. Capital favored the leaders, with Ganfeng rising from a low of HK$16.2 to a high of HK$91.2, a gain of 4.63 times. After May 2026, the sector declined along with lithium carbonate prices.
A bottom turning point carries high premium appeal, but the confirmation of a real estate turning point is uncertain. First, the supply side has contracted to its trough, but the demand side remains relatively weak, with weak expectations for "volume and price" increases. Under the policy of "housing is for living, not for speculation," performance expectations rest on demand, not price. Second, policy support and policy releases, including loan interest subsidies and provident fund plans, need time to be verified on the demand side.
In summary, the real estate industry is still in the bottoming-out stage. This year's 15th Five-Year Plan and the August 28 new policies support the industry's high-quality development, bringing expectations to the demand side. At the current stage, the industry as a whole is losing money, and target performance is differentiated. High-quality leading real estate companies are "stronger stay stronger." Poly Developments, China Overseas Development, and China Resources Land are at industry-leading levels across multiple indicators including performance, financials, and business. There are structural opportunities in the industry. During the bottoming-out cycle, high-quality leading real estate companies are "stronger stay stronger," and if the industry turning point arrives, high-quality leading real estate companies will also be the biggest beneficiaries, with high certainty of market value premium opportunities.
Of course, targets at the expected valuation bottom have greater opportunities. China Vanke's PB ratio is only 0.2 times, lower than Poly Developments, China Resources Land, and China Overseas Development. If the industry turning point arrives, its market value elasticity would be higher, offering a greater risk-reward ratio.