Second-hand home sales growth slows significantly; institutions reiterate strategy of selecting leading players

Overview

This report highlights clear signs of weakness in second-hand home sales in the Chinese real estate market. Despite the low base effect from the Dragon Boat Festival, the real-time YoY growth rate of second-hand home sales in 25 cities slowed significantly to 9.2% in the first 10 days of June 2026, far below levels seen in April and May. The institution believes that pent-up demand released by previous policy relaxations has gradually been digested, and policy effects are diminishing. It expects Q3 sales YoY to potentially turn negative, leading to an overall monthly downward trend in house prices during 2026-2027. Against this backdrop, the institution maintains a cautious stance, advising investors to remain selective and focus on high-quality developers possessing both industry beta and independent alpha.

Core views

Sales momentum has weakened significantly, and regional divergence is intensifying. Data shows that the YoY growth rate of second-hand home sales in 25 cities dropped rapidly from 30% in April and 26% in May to 9.2% in the first 10 days of June. Deceleration was particularly severe in lower second-tier cities such as Nanchang, Foshan, Nantong, Dongguan, Ningbo, and Xi'an; some cities like Tianjin, Changsha, and Chengdu even experienced negative YoY growth. Performance diverged among cities that implemented policy relaxations at the end of April: Suzhou and Wuhan remained strong, but sales growth in Guangzhou, Shenzhen, and Foshan declined by double-digit percentage points. Policy effects are diminishing, putting pressure on market prospects. The institution believes the unexpected rebound in second-hand home sales in March-April was primarily driven by the release of pent-up demand from Q4 2025, along with relaxed mortgage policies and easing resident panic. As these short-term factors fade, the sustainability of sales faces uncertainty. The institution predicts that YoY growth will further moderate in June and may turn negative in Q3. This will lead to an overall monthly downward trend in house prices in 2026-2027, although some tier-1 cities with good inventory clearance progress may see mild increases. Investment Strategy: Prefer defensive leaders. Although stock prices have corrected by 18% since mid-May (underperforming the Hang Seng Index), the institution still believes the industry's risk-reward profile is skewed to the downside. Therefore, it recommends sticking to beneficiaries that combine industry beta with independent alpha. China Resources Land (1109.HK) remains the top pick, followed closely by C&D International (1908.HK). These two companies offer robust EPS prospects, attractive dividend yields, and medium-term re-rating potential, even without a significant recovery in the physical market.

Analysis framework

The institution employs a method combining high-frequency data tracking with policy effect analysis. First, by tracking real-time second-hand home sales data in 25 key cities, it quantifies marginal changes in market heat and compares performance differences across cities of different tiers and those with policy relaxations to identify structural characteristics of market divergence. Second, it assesses the sustainability of current sales rebounds and the decay speed of policy effects by analyzing the impact of prior policy relaxations (such as mortgage rate cuts) on the release of pent-up demand. Finally, based on judgments regarding sales volume and price trends, it selects stocks by combining individual company fundamentals (such as EPS, dividend yield, and inventory clearance progress), emphasizing the search for targets with defensiveness and independent alpha during an industry downturn.

Methodology notes

• Industry/Industrial Analysis FrameworkSupply-demand framework

  Analyzing market supply-demand balance by tracking second-hand home sales volumes, listing volumes, and inventory clearance progress.

  The research report judges that demand-side momentum is weakening by observing slowing sales growth and changes in listing volumes, while better inventory clearance progress in some tier-1 cities suggests alleviated supply-side pressure, thereby deriving divergent housing price trends.

• Event Game Theory & Behavioral FinanceExpectation Gap / Expectation Management

  Analyzing the short-term sales rebound brought by the release of pent-up demand after policy relaxation and its unsustainability.

  The report points out that the sales rebound in March-April was a concentrated release of previously suppressed demand rather than a fundamental market reversal. As this one-off effect fades, market expectations need to return to the reality of weak fundamentals.

• Valuation MethodNAV Net Asset Value Method

  Valuing developers using Net Asset Value (NAV) and applying discounts based on a developer scorecard.

  The report uses NAV valuation for China Resources Land and C&D International, calculating the value of their development properties and investment properties separately, then applying a 30%-35% discount based on scores for land reserves, execution capability, scale, etc., to derive target prices.

Asset mapping & comparison

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

• China Resources Land (1109.HK)

  Top pick, benefiting from robust EPS prospects and high dividend yield

  Strengths

  Strong execution and financing capabilities (score 10/10), high-quality land reserves, investment properties provide stable cash flow

  Weaknesses

  Development business growth may be constrained by overall industry sales slowdown

  Comparison

  More defensive and lower leverage risk compared to peers

  Risks

  Contract sales below expectations, new mall openings slower than expected

• C&D International (1908.HK)

  Secondary pick, possessing medium-term re-rating potential and attractive dividends

  Strengths

  Robust financial position, good profitability, net cash position

  Weaknesses

  Relatively smaller scale, potentially higher dependence on single regional markets

  Comparison

  Higher valuation discount (35%), larger re-rating space if market sentiment improves

  Risks

  Gross margins below expectations, land acquisition slower than expected

Key data

• YoY Growth Rate of Second-hand Home Sales in 25 Cities (First 10 Days of June)9.2%Significant slowdown compared to 30% in April and 26% in May
• Spring Festival Adjusted Cumulative Sales YoY-1%Cumulative sales in relevant cities show slight negative growth
• Stock Price Correction Magnitude (Since Mid-May)18%Hang Seng Index corrected by approx. 8% in the same period
• China Resources Land Target PriceHK$60.88Based on estimated 2026 NAV, applying a 30% discount
• C&D International Target PriceHK$32.59Based on estimated 2026 NAV, applying a 35% discount

Impact & implications

The report argues that the rapid slowdown in second-hand home sales growth confirms the fragility of the market recovery, with the marginal effect of policy stimulus diminishing quickly. This poses pressure on the real estate sector as a whole, with house prices expected to face downside risks over the next year. However, for financially robust leading developers with strong inventory clearance capabilities, market share is likely to increase further, and their stable dividend capacity remains attractive in a low-interest-rate environment. Investors should lower return expectations for overall industry beta and instead focus on alpha opportunities in individual stocks.

Risks

• Contract sales weaker than expected
• New shopping mall openings slower than expected
• Gross margins below expectations
• Land acquisition slower than expected

What to watch

• House sales volumes from June to August
• House price trends
• Second-hand home listing volumes
• Transaction structure mix
• Changes in rental rates