Impact of Narrowing Rent Yield-Loan Rate Gap on Chinese Bank Stocks' Valuation Repair

Based on the background information you provided and the real-time market data I obtained, I will conduct an in-depth analysis of the impact of the narrowing gap between rent yields and loan interest rates on the valuation repair of Chinese bank stocks.

According to the latest data, China’s real estate market has reached a critical turning point:

: The rent yield of key 50 cities reached 2.08% in the first half of 2025 [1]. As of October 2025, the rent yields of first-tier cities are: Beijing 1.52%, Shanghai 1.73%, Guangzhou 1.68%, Shenzhen 1.52% [1], all showing significant increases compared to April.

: The provident fund loan rate is 2.6%, and the commercial loan rate is 3.1%. The gap between rent yields and loan rates has narrowed significantly, and the rent yield in some cities has exceeded the fixed deposit rate of large banks [1].

A rise in rent yields means enhanced investment attributes of real estate, and there is limited room for sharp declines in housing prices. This directly improves expectations for the asset quality of banks’ real estate-related loans:

• Industrial and Commercial Bank of China (ICBC)
  currently has a share price of 7.81 yuan, with a P/E ratio of only 7.89x and a P/B ratio of just 0.71x [0]
• China Construction Bank (CCB)
  has a share price of 8.93 yuan, with an even lower P/E ratio of 6.87x and a P/B ratio of only 0.65x [0]

In 2024, the sales area of new and second-hand housing has stabilized at 1.51 billion square meters, with clear signals that the real estate market has hit the bottom [1]. As the largest creditors in the real estate sector, banks will benefit from:

• Expected decline in non-performing loan ratios
• Reduced pressure on provision coverage ratios
• Savings in credit costs

Currently, the valuations of the four major banks are at historical lows:

• ICBC’s ROE is 9.13%, and CCB’s ROE reaches 10.17% [0]
• However, their P/B ratios are all below 1x, significantly lower than international peers
• Market over-pessimism has led to valuation discounts

: The latest financial analysis shows that the company maintains a neutral financial attitude classification and has a good cash flow situation [0]. Although its debt risk classification is high, this is a common feature in the banking industry.

: Its debt risk classification is medium, and its financial situation is relatively stable [0]. The free cash flow in the second quarter of 2025 reached 533.168 billion yuan [0].

According to institutional outlook, the 15th Five-Year Plan (2026-2030) is expected to build a new model for the real estate sector in 2026, optimize the supply of affordable housing, and promote high-quality development of the industry [1]. Policy support will continue to provide backing for the banking sector.

1. Real estate stabilizes after decline
   : The narrowing gap between rent yields and loan rates is an important signal
2. Economic recovery expectations
   : Stabilization of real estate will drive overall economic recovery
3. Valuation revaluation opportunity
   : Bank stocks should enjoy valuation premiums rather than discounts

1. Extended real estate adjustment cycle
   : Although stabilization signals are clear, full recovery will take time
2. Increased regional differentiation
   : Performance between core cities and third- and fourth-tier cities will continue to diverge
3. Macroeconomic uncertainty
   : Recovery of residents’ income expectations will still take time

As the gap between rent yields and loan rates narrows, market concerns about real estate risks will gradually ease, and bank stocks are expected to usher in a valuation repair trend.

Under the framework of the “new real estate model”, banks will benefit from a healthier and more sustainable real estate market development, and the valuation center is expected to gradually move upward.

It is recommended to focus on large banks with excellent asset quality and sufficient provisions, especially ICBC and CCB, whose current valuation levels have a large margin of safety and room for repair.

[0] Gilin API Data
[1] Securities Times - “Real Estate Trend | Rent Yields Continue to Rise: Is ‘Buying a House for Rent’ Worth It?” (https://stcn.com/article/detail/3504607.html)
[2] The Paper - “2026 Real Estate Market from an Institutional Perspective” (https://m.thepaper.cn/newsDetail_forward_32170438)