Economy is still dropping to the bottom, which will go against real estate recovery in the short run. In August, the industrial added value grew by 6.9%, creating a new low since 2008 Q4, the corresponding monthly GDP level was estimated to have reached around 6.5%, and the economic downward pressure increased. According to the current statistics of prediction on China’s economy, in 2014, China’s GDP growth will fall to 7.4%, and in 2015, the GDP growth will further slightly fall to 7.2%, which means, the course of economic seeking the bottom will continue. We agree with Mr. Ren Zhiqiang’s opinion that, when economic development sees a decline, people’s income and consumption ability will be affected for sure, and the recovery of real estate market will also be constrained.

Unlike the past, the combination of economic data and policy attitude this year is very subtle. According to the previous logic, economic downturn generally would bring full policy stimulus, where real estate would become the first beneficiary. However, given the fall of economic data beyond expectations in August, the central government seemed to still maintain policy concentration. In his speech at Davos Forum, the Premier stressed the health of employment condition, and proposed to drive economic development without reliance upon strong stimulus, but dependence on strong reforms to stimulate market vitality, equivalent to re-stating the basic policy orientation under the “new normal”: only holding the bottom, no stimulus, directional measures expected, hard to introduce gross policy. This might be an important reason for our observation that the gross amount of M1/M2/social financing fell to low after short-term pickup in the growth of monetary aggregates.

Monetary policy is closely associated with real estate sales, and the delayed action of monetary policy has indeed affected the progress of real estate recovery. From January to August, the national commercial housing sales declined by 10.9%, and sales area declined by 10%, creating a new low of this year. In recent months, although the degree of fluctuation was not large, the declining trend remained unchanged.

Local governments are far proactive than the central government, as in July – September, first-tier and second-tier cities successively cancelled purchase restrictions to revive the flagging property market; as a matter of fact, purchase restrictions indeed have indeed played a certain role. We find through analysis on selected 15 cities that have relaxed purchase restrictions that, in July – August, the transaction volume of these cities showed a rebound of approximately 20% than that in June. However, looked from September, the overall transaction volume of these cities dropped by 8% on a MoM basis, making the traditional “Golden September” peak season a bubble; as far as the status quo is concerned, the sustained improvement of sales brought by purchase restrictions for these cities could hardly remain optimistic. Some local governments also began to actively promote credit easing, for example, require lowering the standard for identification of second housing, and the interest rate on loans for first housing. However, looked from the proportion of medium and long-term resident loans in RMB loans, the value now has been in a relative high position, which means, credit expansion still depends on the increase of monetary aggregates; this needs more driving forces from the higher level, including the central bank, State Council, etc., rather than commercial banks themselves.

However, from the perspective of real estate investment, in the future, the central government’s greater support from monetary policy to real estate might not be optional, but required. In January – August, the growth of real estate investment kept dropping to 13.2%, and according to our prediction, it will further drop in the future, which can be explained by, in addition to less sales, investment ability decline caused by the possible leverage ceiling of real estate enterprises. Even if sales stop worsening, we predict that in 2015 Q1, the growth of real estate investment might drop to single digits (the investment growth of 2014 Q1 was 16.8%), by which time, its negative effect on economy will become more apparent.

For details about the sales, land market and housing price performance of each city, please refer to the report. On the whole, as urban stocking and de-stocking cycle remains high, it’s predicted that, housing prices will continue fall within this year, and the depression of land market will not have much improvement.

However, please do not be so pessimistic, as there are always ups and downs in the market. Winter follows autumn, but spring follows winter. A low ebb is not just a decline on the surface, but also creating new prosperity.

“By the side of a vessel sunk, a thousand sails are floating past; in front of a tree, sick with age, thousands of trees grow thick and fast” – to share with you!