The Chinese real estate market has received a significant policy boost, with Monday's trading session seeing the property sector open sharply higher following weekend announcements of new government measures. Several stocks hit their daily price limits as investor sentiment improved markedly.

The most prominent policy changes include an extension of residential mortgage terms from the previous maximum of 30 years to 40 years. This move substantially reduces the principal and interest repayment burden on homebuyers, which is expected to bolster consumer confidence and stabilize the housing market, thereby providing a positive catalyst for the real estate sector. Additionally, the China Securities Regulatory Commission has issued guidelines on supporting the development of a new model for the real estate industry through capital markets. This directive framework covers various financing instruments available to property developers, including equities, bonds, asset-backed securities, and REITs, with the aim of reforming and improving the financing system to meet the reasonable funding needs of real estate enterprises and facilitate the construction of a new development model for the sector.

These measures represent a major tailwind for the property sector, potentially helping to halt the decline and stabilize transaction volumes, which have been under significant pressure in recent years. Over the past five years, the real estate market has experienced a substantial correction, with home prices in many cities nearly halving from their peaks and trading activity contracting sharply. As a pillar industry of the national economy, real estate supports upstream demand from approximately 60 related sectors. The prolonged downturn in the property market has had a ripple effect across multiple industries and has hampered broader economic recovery. Notably, real estate development investment has fallen by double digits for three consecutive years, leading to decreased demand for upstream investment goods.

In response to the current sluggish market conditions, the introduction of these significant policy incentives is designed to stabilize investor confidence and underpin the housing market. However, given that urbanization in China is largely complete and net population inflows into cities have diminished significantly, coupled with overall population decline observed over the past two to three years, it is unlikely that the real estate market will return to its previous high-growth trajectory. That said, properties in core areas of first- and second-tier cities, which possess刚性需求 (essential demand) characteristics and a degree of scarcity, may stabilize and recover first, potentially experiencing simultaneous increases in both transaction volumes and prices. Conversely, properties in non-core areas lacking such essential demand could continue to decline. Therefore, caution remains warranted in real estate investment. For those purchasing for essential or improvement purposes, selecting well-located properties is advisable. However, for purely investment-driven purchases, prudence is still recommended, as the likelihood of significant price appreciation in the near term remains limited. Going forward, property investment should adhere to value investing principles; quality homes can still serve as effective hedges against inflation and preserve or increase value, but properties in unfavorable locations or without essential demand are unlikely to offer substantial investment returns.

Turning to the capital markets, the real estate sector has undergone years of sharp declines, with many property stocks trading at merely 20% to 30% of their historical highs. Supported by these policy catalysts, a technical rebound may occur. However, it is crucial to recognize that the potential for sustained rallies and the magnitude of any upside are likely to be constrained. This is due to the industry's fundamental oversupply relative to demand, as well as the significant erosion of household wealth resulting from the steep decline in property prices over recent years. Furthermore, difficulties in various traditional industries have led to slower income growth or even declines for many residents, which will continue to influence the trajectory of the real estate market.

Since 2021, I have argued that the golden 20-year era for China's real estate sector has concluded. The direction of household savings transfer is expected to shift from the property market to the equity market, presenting a golden decade opportunity for stocks. Driven particularly by advancements in AI technology, China's capital markets are poised for a structural bull market. Since early last year, I have advocated for a focus on six major investment tracks. Notably, the first track—chip semiconductors—and the second track—computing power and algorithms—have already experienced more than a year of substantial gains, with earnings entering a main upward wave. Additionally, sectors such as humanoid robots, commercial aerospace, solid-state batteries, and innovative drugs are expected to gradually release earnings and deliver successive performances. AI technology remains a key area of focus for this market cycle.

Of course, it is advisable not to concentrate solely on technology stocks. Investors may consider maintaining a moderate position of around 50% to 60%, given the current market volatility, while awaiting the next upward move. By employing a diversified strategy that combines technology holdings with dividend-yielding assets, one can achieve a balanced approach, protecting against downside while participating in upside potential. This may facilitate a steady rise in portfolio value and generate favorable investment returns. Value investing remains the key to long-term investment success. Adapting this principle to the unique characteristics of the A-share market—practicing value investing with Chinese characteristics—has proven to be an effective approach. I encourage investors to maintain confidence and patience amid market fluctuations, seeking out leading technology companies that benefit from economic transformation as well as traditional blue-chip stocks with stable dividend payments, thereby capitalizing on opportunities within this structural bull market. Finally, I must emphasize the importance of avoiding leverage and investing only with idle funds. Borrowing money to speculate in stocks has been the root cause of failure for many investors. Adhering to value investing, using discretionary funds, and grounding investment decisions in fundamental research are essential components of achieving long-term investment success.