Time to revisit China's property developers, Evergrande real estate loses credit. 1. Darkest before the dawn? ① We think deteriorating property data could mean less policy tightening and we anticipate margin stabilisation in 2021E-23E. ② Balance-sheet pressures are foremost on investors’ minds and remain a source of downside risk; however. ③ With sector valuations at historically low levels, we note that when the MSCI China Real Estate's P/BV has previously dipped to -1SD below its average, six out of seven times the sector generated positive 23%/33% returns within the next six/12 months. 2. Market deterioration could be good news for share prices. ① A study of previous cycles suggests policies tend to be relaxed when property sales (value)/starts/investment decline by 20%/25%/0%, and the percentage of failed land auctions reaches 16%—and we expect them to reach those levels in the next few months. ② We think the recent new land auction policy (a land price cap premium of15%) is an early positive sign that providing profit margin for developers may enable smoother deleveraging. 3. Off-balance-sheet debt analysis; study of defaulted developers. ① We may be early in calling the cycle—hence balance-sheet analysis is important to gauge downside risk. ② We believe the reasons are: 1) reduced credit supply, 2) declining margins due to new-home price caps, 3) hidden debt, 4) slower sales, 5) landbank concentration, and 6) more partnerships at project level—ie, weaker execution. ③ Warning signs include: 1) a sharp slowdown in land acquisition, 2) management turnover, 3) project or asset disposals, 4) a slowdown in contract sales, and 5) share pledges from controlling shareholders. 4. Historically low valuations. The MSCI China Real Estate Index is trading at 0.7x 12-month forward P/BV and 4.8x 12-month forward PE, -1.4SD and -1.5SD below its respective 10-year averages.