China real estate housing supply squeeze: China’s completed-home-sales reform could accelerate housing inventory contraction before the market prices in the supply squeeze

Overview

HSBC examines how China’s completed-home-sales reform could add a balance-sheet constraint to developers, further reducing land purchases and new starts. The report argues that this will accelerate housing destocking and ultimately improve primary-market sell-through and pricing, although near-term investor confidence depends on policy clarity and sales momentum.

Core views

HSBC argues that China’s housing supply squeeze is developing faster than previously expected and may become a structural market theme from 2027. New-home supply across 80 key cities fell 17% year-on-year in 8M26, reaching only 12% of the 2019 full-year peak, while land acquisitions declined another 20% year-on-year. The firm sees little prospect of a meaningful replenishment of the development pipeline. It estimates that the completed-home-sales reform could reduce developers’ annual investment capacity by about 23% in the medium term unless developers re-leverage or obtain further cash-flow support. The reform changes the inventory outlook by adding a financing and balance-sheet constraint to the earlier mechanical drawdown caused by sales exceeding new starts. HSBC raises its forecast decline for undeveloped land, reflecting land-bank revitalisation funded by developers or government special bonds, while trimming its estimate of area under construction without sales permits because of fewer new starts. Some of this effect is offset by projects already under construction as permit-granting timelines lengthen. The largest effect is expected in narrow inventory: fewer launches and a smaller stock of unsold units after launch should drive a sharper contraction. Broad inventory is forecast to decline at an 11-13% CAGR over 2025-30e, versus a 10% CAGR decline in 2023-25. Accumulated gross floor area started but not sold had already fallen 14% year-on-year to 1.9bn square metres at end-2025. Demand is expected to shift toward the secondary market in the near term as new supply remains limited. Total housing transactions were broadly stable, down 2% year-on-year in 8M26, supported by an 11% increase in secondary-market volumes. The number of cities with inventory declining by more than 10% year-on-year rose to 21 in August 2026 from 17 at end-2025. HSBC expects improved resale liquidity eventually to support a return of demand to the primary market as an upgrading cycle resumes, aided by improved product quality and design. More liquid cities could benefit sooner: August secondary transactions rose 16% year-on-year in Shanghai and 4% in Beijing, which HSBC believes should provide firmer backing for new launches. The timing of a market re-rating remains uncertain. HSBC expects investors to stay cautious until policies rebuild confidence, potentially through meaningful accommodation such as phased land-premium payments and tax deferrals, alongside strong sales momentum and broader new-project price increases. The firm believes these conditions could lead investors to recognise the positive effects of tighter supply. Its principal adverse case is that sales fall faster than supply and resale liquidity weakens, preventing a natural recovery without additional policy support. HSBC’s base sales assumption is a 13-15% annual decline in primary sales in 2027-28 and a 2% annual decline in 2029-30. If declines instead reach 20% and 5%, respectively, broad inventory contraction slows to a 9.9% 2025-30 CAGR, compared with the original 11.1-13.2% range. If new-home sales fall only 10% annually in 2027-28 and recover by 2% annually in 2029-30, broad inventory contraction could accelerate to a 15.4% CAGR. A pessimistic scenario in which idle land does not decline and completed but unsold homes fall only 1% annually produces a 10.7% broad-inventory contraction CAGR. For equities, HSBC prefers COLI and CR Land because of stronger funding access, financial positions and exposure to leading cities, and it also favours KE Holdings because higher secondary-market activity should support its brokerage business. The report maintains Buy ratings on these three names.

Analysis framework

HSBC combines city-level supply, land-acquisition, transaction and inventory data with an inventory-balance forecast. It assesses how the completed-home-sales reform affects developer funding capacity, land investment, new starts and the stock of unsold homes, then tests the resulting inventory path under alternative sales and inventory assumptions. Equity preferences are linked to funding strength, exposure to liquid leading cities and secondary-market activity.

Methodology notes

• Industry AnalysisSupply-demand framework

  Housing supply-demand and inventory-balance analysis

  The report connects lower land purchases and fewer starts with new-home supply, inventory drawdown, transaction absorption and eventual pricing support.

• Industry AnalysisUpstream-Midstream-Downstream Transmission

  Completed-home-sales reform transmission

  HSBC traces how reform-related constraints on developer cash flow and investment capacity can flow through to land purchases, launches, inventory and the primary housing market.

• Valuation methodsNAV (Net Asset Value)

  NAV-based valuation for COLI and CR Land

  For the two developers, HSBC calculates NAV from development and investment-project gross asset values less net debt, then applies target NAV discounts informed by relative operating and financial strength.

• Valuation methodsP/E and PEG Valuation

  P/E multiple valuation for KE Holdings

  HSBC applies an 18x target P/E multiple, based on the 2026-27e average of mainland China internet peers, to its average 2026-27 non-GAAP EPS estimate for KE Holdings.

Asset mapping & comparison

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

• China Overseas Land & Investment (COLI, 0688.HK)

  Preferred developer positioned to benefit from tighter supply and stronger conditions in leading cities.

  Strengths

  Stronger funding access, financial position and exposure to leading cities.

  Weaknesses

  Potential delays in cash flows under the completed-home-sales reform and sector risk-off sentiment are reflected in valuation assumptions.

  Comparison

  HSBC applies a 35% NAV discount, 0.25 standard deviations below its historical mean, to NAV per share of HKD24.90.

  Risks

  Slower sales momentum or land purchases, lower margins, slower booking pace, significant impairment losses and macro uncertainty.

• China Resources Land (CR Land, 1109.HK)

  Preferred developer positioned to benefit from tighter supply and stronger conditions in leading cities.

  Strengths

  Stronger funding access, financial position, rising sales momentum, recurrent income and a solid execution record.

  Weaknesses

  Exposure to property-market and policy uncertainty.

  Comparison

  HSBC applies a 25% NAV discount, 0.75 standard deviations above its historical mean, to NAV per share of HKD51.00.

  Risks

  Inability to sustain sales momentum or dividend stability, lower margins, a material slowdown in shopping malls, and macroeconomic or property-policy uncertainty.

• KE Holdings (BEKE.US)

  Preferred brokerage-service provider expected to benefit from higher secondary-market activity.

  Strengths

  Direct linkage to a more active resale market.

  Weaknesses

  Reliance on property transaction conditions and growth in newer businesses.

  Comparison

  HSBC uses an unchanged 18x target P/E, the 2026-27e average of mainland China internet peers, applied to average 2026-27 non-GAAP EPS of RMB8.76.

  Risks

  Slower-than-expected property sales, a larger-than-expected home-price decline, slower new-business growth, US-market correction, and macro or policy uncertainty.

Key data

• Broad housing inventory forecast11-13% CAGR decline in 2025-30eAccelerates from a 10% CAGR decline in 2023-25.
• New-home supply in 80 key cities-17% y-o-y in 8M26Equivalent to 12% of the 2019 full-year peak.
• Land acquisitions-20% y-o-yFurther reduces the likelihood of a meaningful supply-pipeline rebuild.
• Developer annual investment capacityc23% medium-term declineHSBC estimate unless developers re-leverage or receive additional cash-flow support.
• Accumulated GFA started but not sold1.9bn sqm at end-2025Down 14% year-on-year.
• Secondary-market transaction volume+11% y-o-y in 8M26Helped stabilise total housing transactions, which were down 2% year-on-year.
• Cities with inventory down more than 10% y-o-y21 cities in August 2026Up from 17 cities at end-2025.

Impact & implications

HSBC believes an increasingly scarce new-home supply and improving resale liquidity can eventually lift primary-market absorption and support firmer pricing, particularly in liquid leading cities. It expects the market to recognise this only after clearer supportive policy, sustained sales momentum and broader price increases. Developers with better funding and leading-city exposure, as well as a brokerage benefiting from higher resale activity, are its preferred expressions of the view.

Risks

• Primary sales could decline faster than supply, reducing the scale of the projected inventory squeeze.
• Secondary-market liquidity could deteriorate, weakening confidence and delaying a natural housing-market recovery.
• Idle land may remain unchanged and completed but unsold homes may decline only slowly, moderating inventory contraction.
• Macro and property-policy uncertainty could restrain sales momentum and pricing recovery.

What to watch

• Whether phased land-premium payments, tax deferrals or other accommodative policies improve developer and buyer confidence.
• Primary-sales momentum and whether new-project price increases broaden.
• Secondary-market transaction trends, particularly in liquid cities such as Shanghai and Beijing.
• Land acquisitions, new starts and the pace of inventory decline.