China real estate June data deteriorated, and fundamentals may remain under pressure in 3Q

Overview

This report is Morgan Stanley’s monthly tracker on China’s real estate sector, covering sales, prices, the secondary market, inventory, land, mortgages, policy, developers’ sales, and NBS data. The core conclusion is that June real estate data deteriorated, sales weakened further, home price trends remained soft, pressure from secondary-home listings and inventory in some cities persisted, and sector fundamentals may remain under pressure in 3Q.

Core views

The report believes that primary-home sales shifted from slight positive growth in May to a YoY decline in June, while secondary-home sales growth also slowed markedly; the slowdown in secondary-home transactions together with rising inventory could accelerate home price declines in 3Q, especially in tier-2 and lower-tier cities. Given potentially weak 1H earnings, limited policy upside, and continuing funding-flow disruptions, the institution advises investors not to make a broad-based bet on a sector recovery, but instead to selectively choose developers with credible self-help alpha and relatively better risk-reward profiles.

Analysis framework

The report uses a monthly high-frequency tracking framework, combining indicators such as CREIS primary and secondary home sales, Bingshan real-time secondary sales and listing prices, NBS 70-city home prices, the CREIS secondary-home price index, CRIC inventory digestion months, land transactions in 300 cities, and new saleable resources from leading developers to observe sales momentum, pricing pressure, inventory structure, and supply-side changes.

Methodology notes

• Industry monthly trackingSales-price-inventory-land linkage framework

  Use sales growth, home price MoM/YoY changes, inventory digestion months, and land market activity to assess the direction of real estate fundamentals.

  Sales slowdowns usually weaken price support; rising inventory digestion months intensify price pressure; declines in land transactions and new saleable resources affect developers’ subsequent launch schedules and revenue visibility.

• Data methodologyCity-tier comparison

  Break down sales, prices, and inventory performance by tier-1, tier-2, and tier-3 cities.

  The report emphasizes that price performance in tier-1 cities is relatively milder, while inventory increases and downward price pressure are more evident in tier-2 and lower-tier cities; therefore, differences across city tiers are an important dimension for assessing 3Q risks.

Asset mapping & comparison

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

• China real estate sector

  Core coverage target

  Strengths

  Policy may still provide some support, and price performance in some tier-1 cities is relatively mild.

  Weaknesses

  Slowing sales, falling home prices, high inventory, and a weak land market are jointly weighing on sector conditions.

  Comparison

  Pressure is relatively lighter in tier-1 cities, while tier-2 and lower-tier cities face higher inventory and stronger downside price risks.

  Risks

  Further weakening in 3Q sales, wider home price declines, policy effectiveness below expectations, and continued disruption to developers’ funding flows.

• China Resources Land Ltd. (1109.HK)

  One of the quality developers recommended by the report

  Strengths

  Considered to have a favorable risk-reward profile at the current valuation.

  Weaknesses

  Still affected by sector-wide sales weakness and home price pressure.

  Comparison

  Compared with broad sector exposure, the report prefers developers with quality and self-help alpha.

  Risks

  Sector sales weakness, earnings pressure, and policy coming in below expectations.

• C&D International Investment Group Ltd (1908.HK)

  One of the quality developers recommended by the report

  Strengths

  Listed as a name with relatively attractive risk-reward at current valuations.

  Weaknesses

  Earnings and sales may still be dragged down by sector weakness in 3Q.

  Comparison

  Belongs to the report’s selective picks rather than a broad-based sector allocation.

  Risks

  Sales slowdown, funding-flow disruptions, and project sell-through below expectations.

• Seazen Group Ltd (1030.HK) / Seazen Holdings Company Ltd. (601155.SS)

  One of the quality developers recommended by the report

  Strengths

  The report believes Seazen-related listed platforms offer favorable risk-reward at current valuations.

  Weaknesses

  Still sensitive to real estate sales, inventory, and the funding environment.

  Comparison

  The report ranks it alongside CR Land and C&D as a better risk-reward choice.

  Risks

  Rising inventory in tier-2 and lower-tier cities, falling home prices, and financing and funding-flow pressure.

Key data

• CREIS 65-city primary-home sales2026 June YoY -7%; May YoY +1%; YTD YoY -14%Registered primary-home sales weakened significantly.
• 33-city secondary-home registered sales2026 June YoY +6%; May YoY +14%; YTD YoY +7%Secondary-home sales remained positive but growth slowed.
• Bingshan 25-city real-time secondary-home salesMTD YoY +8%; June YoY +10%Suggests subsequent registered sales may continue to weaken.
• NBS 70-city new-home pricesYoY -3.5%; MoM -0.2%New-home prices continued to decline.
• NBS 70-city secondary-home pricesYoY -5.6%; MoM -0.3%Secondary-home prices fell more than new-home prices.
• CREIS secondary-home price indexTop-10 cities YoY -7.5%, MoM -0.2%; Top-100 cities YoY -7.7%, MoM -0.4%A broader city sample shows deepening price pressure.
• Bingshan secondary-home listing pricesYoY -10.5%; MoM -0.5%Listing-side prices still face clear downward pressure.
• Secondary-home listing volumeAverage total listings in about 50 sample cities MoM +0.2%; new listings MoM -3%, YoY -13%Total listings increased slightly, while new listings continued to decline.
• Inventory digestion months31.8 months in 70 cities; 21.8 months in tier-1, 30.4 months in tier-2, 42.7 months in tier-3Inventory pressure rose in tier-2 and tier-3 cities.
• Land marketLand transaction GFA in 300 cities YoY -23%, transaction value YoY -15%, average premium rate 5.7%The land market remained weak.
• New saleable resources of leading developersTop-100 developers June YoY -14%, 6M26 YTD YoY -37%May create downward pressure on new project launches in 2H.

Impact & implications

For investment, the report’s signal is that sector beta remains weak, and it is difficult to rely on sales or policy for a broad-based reversal in the near term. Slowing sales and falling home prices will suppress developers’ earnings, cash flow, and valuation recovery; however, amid overall pressure, developers with stronger balance sheets, project quality, operating capabilities, or self-help improvement potential may still generate relative returns.

Risks

• 3Q real estate sales may weaken further.
• The slowdown in secondary-home sales may accelerate home price declines.
• Rising inventory in tier-2 and lower-tier cities may bring greater price pressure.
• Weak 1H earnings may weigh on developers’ profitability and market expectations.
• Policy upside is limited, and supportive effects may be insufficient.
• Continued funding-flow disruptions may affect developers’ cash flow and valuations.
• Declines in land transactions and new saleable resources may weigh on new launches in 2H.

What to watch

• Whether primary-home and secondary-home sales continue to slow in July and 3Q.
• Whether the MoM decline in NBS 70-city home prices widens.
• Whether inventory digestion months continue to rise in tier-2 and tier-3 cities.
• Whether secondary-home listing volume and listing prices deteriorate further.
• Whether real estate policy easing exceeds expectations.
• Developers’ 1H earnings and cash flow disclosures.
• Top-100 developers’ new saleable resources and launch pace in 2H.