CICC bullish on China home sector as urban renewal plan targets 500,000 units

China's home sector entered the mid-stage of a rising Beta trend as the State Council's urban renewal plan targets renovation of 500,000 housing units, CICC said.

CICC turned bullish on China's home sector Monday, citing the State Council's urban renewal plan targeting 500,000 housing units as a catalyst that, combined with improving fundamentals and capital rotation, pushes the sector into the mid-stage of a rising Beta trend.

"The current rally in both A-share and H-share home sectors is driven by three factors: improving fundamentals, policy tailwinds, and capital rotation," the CICC research team wrote in a note dated June 1.

The State Council's 15th Five-Year Urban Renewal Plan, released May 29, targets renovation of 500,000 units of dilapidated housing, 115,000 old residential communities, and 4,000 urban villages, alongside 365,000 kilometers of underground pipeline upgrades. China Overseas Land & Investment Ltd. rose 1.98 percent to HKD15.93, Longfor Group Holdings Ltd. gained 2.42 percent to HKD8.04, and China Resources Land Ltd. advanced 2.6 percent to HKD36.24, with combined turnover exceeding HKD1.16 billion across the three developers.

The plan envisions "significant progress" in urban renewal by 2030, with cities evolving into places ensuring high quality of life. CICC said improvements in sales volume and prices will serve as catalysts for the next phase of growth, suggesting the sector's upside depends on whether the policy push translates into measurable transaction recovery in coming months.

The urban renewal blueprint marks the first national-level plan of its kind, outlining six major tasks including fostering new urban development drivers, creating high-quality living spaces, advancing green and low-carbon transitions, building safer cities, promoting urban culture, and enhancing governance capabilities. The policy arrives as China's property sector continues navigating a prolonged downturn, with home sales and developer cash flows under pressure since the 2021 credit tightening.

The last time Beijing rolled out a broad-based housing stimulus — the September 2024 package that included lower mortgage rates and reduced down-payment ratios — the CSI Real Estate Index rallied 18 percent over the following month before giving back gains as demand failed to sustain. The current plan's focus on physical renovation rather than demand-side stimulus represents a structural approach, targeting housing stock quality rather than new construction volumes. This distinction matters for developer exposure: companies with urban redevelopment pipelines benefit from government-backed procurement, while pure residential developers face continued headwinds from weak end-user demand.

For developers with significant exposure to urban renewal projects, the plan could unlock land redevelopment opportunities. China Resources Land, the most heavily traded of the three Monday with HKD726 million in turnover, has positioned itself as a leading player in urban redevelopment across first-tier cities. Longfor Group's diversified rental income stream from its Longfor Tianjie mall chain provides a buffer against residential sales volatility. China Overseas Land & Investment, with its strong balance sheet and state-owned enterprise backing, is well-placed to bid on large-scale renovation contracts.

Capital rotation also played a role in Monday's gains, CICC noted, as investors shifted funds into the home sector from other segments. Short-selling data showed elevated activity: China Overseas Land had a short-selling ratio of 23.2 percent, Longfor 24.8 percent, and China Resources Land 19.5 percent, suggesting some investors are hedging against a potential pullback even as the sector rallies.

The urban renewal plan also carries implications for related industries. The 365,000 kilometers of underground pipeline upgrades will drive demand for construction materials, engineering services, and municipal infrastructure contractors. The renovation of 4,000 urban villages could unlock significant land supply in major cities, potentially easing the structural housing shortage in first-tier markets over the medium term.

CICC's bullish call comes as the broader Hang Seng Index has shown mixed performance, with property stocks outperforming the benchmark. The broker's view that the sector is in the "mid-stage" of a rising trend implies further upside potential, but the pace of gains will depend on whether sales data in the coming months confirms a genuine recovery. The next key data point will be June transaction volumes, which will provide the first real test of whether the policy tailwind is translating into buyer behavior.

This article is for informational purposes only and does not constitute investment advice.