15th Five-Year Plan Urban Renewal Plan Released, Potentially Boosting Housing Demand

Overview

Goldman Sachs releases a research report interpreting the State Council's latest issued '15th Five-Year Plan Urban Renewal Plan'. The report points out that this plan marks China's urban construction transition from large-scale incremental expansion to extracting value from existing stock, aiming to build safe, green, and smart modern cities through quality improvement, efficiency enhancement, and functional optimization. The institution calculates that compared to the 14th Five-Year Plan, the incremental investment brought by urban renewal during the 15th Five-Year Plan period is about 4-5 trillion RMB. This scale is equivalent to 66% of its estimated average real estate development investment amount in 2026-2027, possessing significant economic pulling potential. The research report believes that this plan is an important step to form a benign positive feedback loop between the real estate market and urban consumption, but fund availability and execution efficiency remain core variables of market concern.

Core views

Core Viewpoint 1: Incremental investment scale is considerable, structural focus shift. The research report estimates that incremental investment for urban renewal during the 15th Five-Year Plan period is about 4-5 trillion yuan. Although lower than the over 6 trillion yuan incremental during the 2015-2019 shantytown renovation period, considering the current real estate fixed asset investment (FAI) base has dropped significantly (estimated average 2026-27E is 6.8 trillion yuan), this incremental proportion still reaches high 66%, comparable to the proportion of the previous shantytown renovation incremental occupying 2014 FAI (69%). Investment focus shifts from new construction to existing stock renovation, especially dilapidated house renovation (target 500,000 units, doubling compared to 14th Five-Year), old blocks and factory area revitalization (1,500 units), and underground pipe network upgrade (770,000 km). Core Viewpoint 2: Financing mechanism innovation, multi-channel guarantee funds. The plan clarifies a diversified fund support system: 1) Fiscal and credit support: Allow local government special bonds (LGSBs) as capital for qualifying projects, expected 2026 special bond issuance scale reaches 4.4 trillion yuan; 2) Capital market tools: Vigorously promote infrastructure REITs and Asset-Backed Securities (ABS), encourage enterprises to finance via corporate bonds and medium-term notes; 3) Social capital participation: Regulate PPP mode, cooperate with public utility price reform to incentivize private sector investment; 4) Land policy loosening: Simplify land use conversion and function upgrade approval, reduce land consolidation tax burden, explore flexible land supply methods such as long-term leasing. Core Viewpoint 3: Key to forming positive feedback loop. The research report emphasizes that it previously pointed out the real estate market needs to form a positive feedback with urban consumption. This plan, through improving living environment, reviving idle assets (such as old factories, commercial buildings), and upgrading consumption infrastructure (serving silver economy, ice/snow economy, etc.), is expected to boost overall urban consumption. However, currently mass market housing demand has not obviously warmed up, even in relatively optimistic tier-1 cities. Therefore, broader labor market recovery will be the key prerequisite to stimulate housing demand. The institution does not exclude the possibility of policy exerting effort in the early stage of the five-year plan to buffer economic downward risks.

Analysis framework

Institutions adopt an analysis approach combining 'quantity-price breakdown' and 'historical analogy'. First, by breaking down specific quantitative targets of the 15th Five-Year Plan (such as number of dilapidated houses renovated, pipe network kilometers), comparing with 14th Five-Year Plan data, estimating incremental physical workload. Second, convert these physical workloads into monetized incremental investment scale (4-5 trillion yuan), compare proportionally with current total real estate development investment (FAI), while referencing historical data from the previous shantytown renovation period, assessing its relative impact on the macro economy. Finally, analyze feasibility from financing end (special bonds, REITs, PPP) and policy end (land, tax) combined with macroeconomic background (employment, consumption) to judge its actual transmission effect on real estate fundamentals.

Methodology notes

• Industry/Industrial Analysis FrameworkQuantity-Price Breakdown

  By decomposing policy goals into specific physical quantities (such as renovation area, pipeline length), then multiplying by unit cost or referencing historical investment intensity to estimate total investment scale.

  The research report did not directly cite official total investment amount, but deduced 4-5 trillion incremental investment by comparing quantity changes in specific indicators like dilapidated house renovation, pipe network construction, etc., between 14th and 15th Five-Year Plans; this method can capture structural changes more delicately.

• Cycle and Prosperity FrameworkCapacity/Equipment Cycle (Juglar)

  View urban renewal as a broad fixed asset renewal cycle, analyzing its pull on investment demand.

  The research report analogizes this round of urban renewal with the 2015-2019 shantytown renovation cycle, judging the potential bottoming strength of this policy on industry prosperity by comparing the proportion of incremental investment to current real estate investment.

• Valuation MethodNAV Net Asset Value Method

  Use Net Asset Value (NAV) as the main valuation anchor for real estate development enterprises.

  When involving valuation of related companies, the research report mentions its target price is mainly based on estimated NAV at the end of 2026; this is a common valuation method for heavy asset industries, reflecting the comprehensive value of asset replacement cost and discounted future cash flows.

• Valuation MethodSOTP Segment Valuation

  Adopt different valuation methods for different business segments to sum up.

  The research report specifically points out that for diversified enterprises like OCT (Overseas Chinese Town), its real estate development business uses NAV valuation, while tourism business uses P/E valuation, finally summed to get target price, reflecting applicability of segment valuation.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Overseas Chinese Town A (OCT)

  Beneficiary target, because its business covers real estate development and tourism operations, aligning with asset revitalization and consumption upgrade direction in the plan

  Strengths

  Tourism business can use P/E valuation, real estate part uses NAV valuation, segment valuation logic is clear

  Comparison

  Research report uses SOTP valuation for it, distinguished from pure real estate developers

Key data

• 15th Five-Year Plan Incremental Investment Scale4-5 trillion RMBCompared to the incremental part of the 14th Five-Year Plan
• Incremental Investment Ratio of FAI66%Proportion of estimated average real estate development investment value for 2026-27E
• Dilapidated House Renovation Target500,000 units250,000 units during 14th Five-Year Plan, achieving doubling
• Old Residential Community Comprehensive Upgrade115,000 units240,000 units during 14th Five-Year Plan, number decreased but focused on comprehensive upgrade
• Underground Pipe Network Renovation770,000 kmAmong which 365,000 km renovated, 250,000 km during 14th Five-Year Plan
• 2026E Special Bond Issuance Estimate4.4 trillion RMBAdvanced according to plan by early 2026, can serve as project capital

Impact & implications

The research report believes that this plan means for the real estate industry an accelerated transition from 'incremental development' to 'existing stock operation' model. For developers with urban renewal experience, especially those possessing ability to revitalize old assets, this is a structural opportunity. At the same time, promotion of infrastructure REITs helps real estate enterprises achieve light asset transformation, improving balance sheet. From a macro perspective, if funds can successfully land and exert effort in advance, it will offset the pressure of declining real estate investment in the short term, and indirectly promote mid-to-long term consumption recovery by improving living environment and consumption facilities. However, its actual effect highly depends on local fiscal status, private capital participation willingness, and labor market recovery situation.

Risks

• Fund implementation falls short of expectations: Local fiscal pressure may limit the actual investment capacity of special bonds
• Private sector participation is low: If PPP mode return mechanism is unclear, social capital may wait and see
• Labor market recovery is slow: If resident income expectations are not improved, housing improvement demand is difficult to truly release
• Policy execution rhythm deviation: If unable to exert effort in advance, the short-term economic bottoming effect is limited

What to watch

• Subsequent specific implementation rules and project lists issued by various provinces and cities
• Issuance scale and interest rate level of infrastructure REITs in the field of urban renewal
• Actual landing progress of local government special bonds used as project capital for urban renewal projects
• Marginal changes in housing transaction volume in tier-1 cities and core tier-2 cities