Leading indicators continued to deteriorate in July, and the recovery of China's physical property market remains under pressure

Overview

The report tracks high-frequency indicators such as secondary-home listing prices, listing volumes, new listings, and agency store visits in major Chinese cities. The price downtrend showed no improvement in July, and month-on-month declines in Tier-1 cities accelerated instead. Meanwhile, growth in total listings, declining visits, and weak household confidence indicate that supply-demand pressures are still accumulating. Morgan Stanley therefore remains cautious on the recovery of the physical market and expects new-home and secondary-home sales may continue to cool in the coming months, with month-on-month home price declines possibly widening slightly.

Core views

First, the scope of secondary-home listing price declines remains broad, with about 95% of sample cities falling month-on-month; continuously lowered listing prices may exert stronger pressure on transaction prices in the second half of 2026. Second, city-level performance continues to diverge: Tier-1 cities, after previous relative strength, have begun to catch down, while the increase in listed supply is more evident in lower-tier cities. Third, seasonal cooling combined with fragile household sentiment may cause secondary-home sales in major cities to weaken further year-on-year from August to September. Fourth, at the industry level, investors should not bet on a broad recovery, but should selectively choose developers with reasonable valuations, strong financial and execution capabilities, and room for self-help improvement.

Analysis framework

The research adopts an approach combining city-level high-frequency leading indicators with company valuation: it assesses physical market trends through secondary-home listing prices in 85 cities, listing supply in about 50 cities, and agency store visit data in 45 cities; at the company level, it uses net asset value, discounted cash flow, investment property capitalization rates, and developer scorecard discounts for relative value assessment.

Methodology notes

• Industry high-frequency trackingSecondary-home leading indicator system

  Identify inflection points in sales and prices through listing prices, listing volumes, new listings, and store visits.

  The listing price sample covers 85 cities, the listing volume sample covers about 50 cities, and the visit volume sample covers 45 cities, combined with month-on-month, year-on-year, and city-tier differences to assess market conditions.

• Company valuationNet asset value valuation method

  Estimate the value of development properties, investment properties, and net debt separately, then apply a discount to net asset value.

  Development properties mainly use the discounted cash flow method, investment properties use capitalization-rate valuation, and a 30% to 45% net asset value discount is applied based on company quality and industry risks.

• Relative quality assessmentDeveloper scorecard

  Evaluate developer quality across seven dimensions: land bank, execution, scale, growth, profitability, financing, and leverage.

  The scoring results are used to determine different companies' net asset value discounts; companies with better quality, financing capability, and leverage performance usually apply lower discounts.

Asset mapping & comparison

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

• China Resources Land Ltd.（1109.HK）

  Report's top pick

  Strengths

  The developer scorecard is strong across land bank, execution, scale, growth, profitability, financing, and leverage; the company has a relatively high share of investment properties and offers a relatively better risk-reward profile.

  Weaknesses

  A slowdown in property sales will still affect the development business, and the pace of shopping mall openings will also affect value realization.

  Comparison

  Compared with other covered developers, the company applies a 30% net asset value discount, lower than the 30% to 45% coverage range used in the report, reflecting a higher quality assessment.

  Risks

  Contracted sales weaker than expected, or new shopping mall openings slower than expected.

• Seazen Group Ltd（1030.HK）

  High-quality self-help improvement target

  Strengths

  It has a portfolio of development properties and investment properties, relatively good execution, financing, and leverage scores, and its current valuation is considered to offer a better risk-reward profile.

  Weaknesses

  Land bank and growth scores are relatively average, and the company is relatively sensitive to development sales and investment property operating performance.

  Comparison

  The estimated 2026 net asset value per share is HK$4.80, and the report applies a 40% discount, higher than China Resources Land's 30% discount.

  Risks

  Contracted sales weaker than expected, development margin compression faster than expected, or weak rental growth.

• Seazen Holdings Company Ltd.（601155.SS）

  High-quality self-help improvement target

  Strengths

  It has both development and investment properties, with potential to improve returns through commercial property operations and asset disposals.

  Weaknesses

  Net debt creates a relatively large deduction to net asset value, and land bank and growth scores are in the middle range.

  Comparison

  The estimated 2026 net asset value per share is Rmb35.84, and a 40% discount is applied.

  Risks

  Development margin compression faster than expected, recurring income growth weaker than expected, or the progress of injecting shopping centers into private real estate investment trusts slower than expected.

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

  Relatively attractive risk-reward target

  Strengths

  Land bank, execution, scale, growth, and financing scores are high, and development business net asset value provides the main support.

  Weaknesses

  Investment properties and other businesses contribute relatively limited valuation, and value performance is more dependent on development sales and gross margins.

  Comparison

  The estimated 2026 net asset value per share is HK$29.69, and the report applies a 35% discount, between China Resources Land and the Seazen companies.

  Risks

  Gross margin weaker than expected or land acquisition pace slower than expected.

Key data

• Secondary-home listing prices month-on-month-0.5%Overall performance of 85 sample cities in July, the same as in June.
• Secondary-home listing prices year-on-year-9.6%Shows that prices remain in a clear downtrend.
• Share of cities with month-on-month declines in listing pricesAbout 95%Similar to the June level of about 94% to 95%.
• Tier-1 city listing prices month-on-month-0.4%Deteriorated significantly from -0.1% in June, with declines accelerating in all Tier-1 cities.
• Total listings month-on-month+0.5%The July growth rate in about 50 sample cities was higher than June's +0.2%.
• New secondary-home listingsMonth-on-month -1%, year-on-year -9%Although still declining, the month-on-month decline was the smallest year-to-date.
• Share of cities with listings at record highs35%Listings in more than half of the sample cities have already exceeded end-2025 levels.
• Agency store visitsMonth-on-month -6%, year-on-year flatAverage performance of 45 sample cities in July, partly affected by seasonal factors.

Impact & implications

The deterioration of leading indicators means that property sales, prices, and developer profit margins still face downward pressure, and a broad sector-level valuation rerating lacks solid fundamental support. The continued increase in secondary-home supply may intensify price-cutting competition among sellers and further transmit to transaction prices and the new-home market. From an investment perspective, a defensive stock-picking strategy is more appropriate, focusing on companies with strong financing capabilities, leverage levels, investment property cash flows, and operating execution, rather than broadly betting on an industry reversal.

Risks

• New-home and secondary-home sales remain weaker than expected.
• Secondary-home listed inventory continues to rise and triggers more intense price-cutting competition.
• Home prices fall faster than expected, further compressing developer profit margins and net asset value.
• Household home-buying confidence remains weak for an extended period, and policy support struggles to translate into actual demand.
• Financing environment or cash flow disruptions intensify, limiting sector valuation recovery.
• Investment property rental growth and shopping mall opening progress fall short of expectations.

What to watch

• Year-on-year changes in secondary-home sales in major cities from August to September.
• The speed at which secondary-home listing prices transmit to actual transaction prices.
• Whether catch-down declines in Tier-1 cities expand, and whether supply-demand advantages in core cities can support prices.
• Whether total listings and the share of cities at record highs continue to rise.
• Whether agency store visits and household home-buying willingness can improve.
• Key developers' contracted sales, gross margins, financing conditions, and investment property operating performance.