May Real Estate Data: First-Tier City Home Prices Stabilize, Industry Continues K-Shaped Divergence
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May Real Estate Data: First-Tier City Home Prices Stabilize, Industry Continues K-Shaped Divergence
NBS data for May show first-tier city home prices posting month-on-month gains for the third consecutive month, while the 70-city average saw a slight widening of its decline; year-on-year sales declines remained in the single digits. The firm remains optimistic about state-owned developers focused on first-tier markets.
- First-tier cities: New home prices up 0.2% m/m; second-hand homes up 0.3% m/m, marking three consecutive months of growth
- 70-city average: New home prices down 0.20% m/m, a slight widening from April’s 0.19% decline
- Residential sales value down 7.1% y/y, with the decline remaining in the single digits
- New construction starts down 24% y/y, with weak starts potentially helping prices stabilize
- Maintains a constructive view on state-owned developers such as China Overseas, China Resources, and China Jinmao
Report interpretation
Overview
J.P. Morgan has released its analysis of China’s real estate sector data for May 2026. The key takeaway is that the market continues to exhibit K-shaped divergence: first-tier city home prices remain stable, while other cities continue to weaken slightly. The report views current price stabilization as a critical indicator of recovery, with supply contraction due to weak construction activity providing a short-term tailwind to the sector. The firm maintains a constructive stance on state-owned developers focused on first-tier markets.
Core views
Price Trends: In first-tier cities, new home prices rose 0.2% m/m (0.1% in April), while second-hand prices increased 0.3% m/m (marking three consecutive months of growth). Shanghai and Shenzhen stood out. Across the 70 cities, new home prices fell 0.20% m/m, a slight widening from April’s 0.19% decline, but better than the over 0.5% monthly drops seen in the second half of 2025. Sales and Construction: Residential sales value declined 7.1% y/y (7.4% in April), with the decline remaining in the single digits. New construction starts were down 24% y/y (27% in April), largely due to sluggish land sales in the second half of 2025. The firm believes the drop in new starts will reduce future supply, thereby supporting price stabilization. Investment Thesis: Against the backdrop of sector divergence, the firm advises sticking to alpha opportunities and favors state-owned developers focused on first-tier cities whose sales growth is outperforming the broader market (e.g., China Overseas, China Resources, and China Jinmao). Some investors have turned bearish on the sector due to a 25% y/y decline in real estate investment (20% in April), but the firm argues that price stabilization is a more reliable gauge of sector health than investment data.
Analysis framework
The report employs a supply-and-demand framework: demand is assessed through sales data (value and area y/y), while supply is evaluated using new starts and land sales. By comparing price trends in first-tier cities with the 70-city average, the report confirms the K-shaped divergence. It also links real estate investment data to price stabilization, highlighting the short-term positive impact of weak construction activity on the sector.
Methodology notes
Analyzing sector equilibrium through demand-side metrics (sales data) and supply-side indicators (new starts, land sales)
The report uses year-on-year sales value and area to measure demand, and new starts and land sales to gauge supply, noting that reduced construction activity may help stabilize prices
Judging industry sentiment turning points based on month-on-month changes in home prices
The report cites three consecutive months of positive month-on-month price growth in first-tier cities as a signal of stabilization, contrasting this with the continued decline across the 70-city average to highlight a structural turning point
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- China Overseas Development (0688.HK)Beneficiary: State-owned developer focused on first-tier cities
- Strengths
- Strong presence in first-tier markets; sales growth outperforms peers
- Comparison
- Outperforms private-sector developers
- Risks
- Policy risk
- China Resources Land (1109.HK)Beneficiary: State-owned developer focused on first-tier cities
- Strengths
- Strong presence in first-tier markets; sales growth outperforms peers
- Comparison
- Outperforms private-sector developers
- Risks
- Slower-than-expected sales recovery
- China Jinmao (0817.HK)Beneficiary: State-owned developer focused on first-tier cities
- Strengths
- Strong presence in first-tier markets; sales growth outperforms peers
- Comparison
- Outperforms private-sector developers
- Risks
- Sector liquidity risk
Key data
- First-Tier City New Home Prices m/m+0.2%May data; April was +0.1%
- First-Tier City Second-Hand Home Prices m/m+0.3%Three consecutive months of growth
- 70-City New Home Prices m/m-0.20%April was -0.19%
- Residential Sales Value y/y-7.1%May data; April was -7.4%
- New Construction Starts y/y-24%May data; April was -27%
- Real Estate Investment y/y-25%May data; April was -20%
Impact & implications
The report finds no significant upside or downside surprises in the data and reiterates its industry view: first-tier city home prices are softening toward stabilization, while other cities may still see declines exceeding 5%. It remains constructive on state-owned developers (China Overseas, China Resources, and China Jinmao) due to their focus on first-tier markets and sales growth that outperforms the broader sector. Weak construction activity is viewed as a short-term positive for the industry.
Risks
- Risk of policy changes affecting the real estate sector
- Slower-than-expected recovery in sales
- Declines in home prices in non-first-tier cities exceeding 5%
- Liquidity risks within the sector
What to watch
- Subsequent monthly month-on-month home price data
- Changes in inventory levels in first-tier cities
- Trends in year-on-year new construction starts
- Sales performance of state-owned developers