Second-hand home sales in mainland China are rising, while prices remain stable; negative equity in Hong Kong properties has plummeted.

Overview

This research report is J.P. Morgan’s weekly data‑driven monitoring of the real estate markets in Mainland China and Hong Kong. The key findings highlight a pronounced divergence and structural recovery across the two regions: in Mainland China, secondhand‑home market activity has strengthened markedly, while new‑home sales remain subdued; meanwhile, Hong Kong’s property market continues to exhibit a moderate rebound, supported by a sharp decline in negative equity, a pickup in home price indices, and diverging absorption rates among new‑launch projects. In addition, the report updates its credit‑bond outlook for Chinese property developers and provides an analysis of changes in Stock Connect holdings.

Core views

The Chinese mainland market is characterized by a “hot secondhand, cold new‑home” dynamic. According to the latest weekly data, registered transactions of existing homes in 12 key cities rose 23% year over year, with Shanghai and Beijing up 7% and 3%, respectively, since the start of the year—indicating improving liquidity in the existing‑home market. Meanwhile, new‑home sales registrations across 20 cities fell 8% year over year; although third‑tier cities bucked the trend with a 31% increase, the overall year‑to‑date decline still stands at 10%. Due to holiday factors, leading indicators such as the Centaline Property Price Index were suspended this week. In Hong Kong, the residential market fundamentals continue to strengthen. By the first quarter of 2026, the number of negative‑equity cases had dropped to 11,400, a sharp 46% quarter‑on‑quarter decline and 72% below the peak recorded in the first quarter of 2025, reflecting an improvement in homeowners’ financial health as property prices rebound. The Centaline City Leading Index (CCL) has already gained 7.7% year to date, leaving just 2.3 percentage points short of the full‑year forecast of 10–15% growth. The new‑launch market is showing marked divergence: well‑priced projects, such as the second phase of One Victoria Cove, sold out on the day of release, while more aggressively priced offerings, like the third phase of The Pavilia Farm III, have seen only a 49% sell‑through rate. On the supply side, potential private‑sector housing inventory over the next three to four years is projected at 101,000 units, implying a stock‑clearance period of 4.6 years—within the historical norm. Turning to the corporate bond market, institutional views remain sharply divided between high‑quality private developers and distressed property firms. Longfor Group received an upgrade from Fitch, which revised its rating outlook from “Negative” to “Stable,” citing the company’s ability to offset downside risks in its development business through operating‑property income and its robust debt‑servicing capacity—views echoed by JPMorgan, which has overweighted Longfor bonds. By contrast, Vanke’s core net profit and free cash flow remained negative in the first quarter of 2026, with its cash‑to‑short‑term‑debt ratio further contracting to 0.36x. Without a comprehensive restructuring plan in the coming months, Vanke is expected to address its maturing debt due in June and July via a “40% down payment plus a one‑year extension” arrangement.

Analysis framework

The research report employs a high-frequency data tracking approach, leveraging week- and monthly-level comparisons of volume and price trends to capture market marginal trends. When analyzing the Hong Kong property market, we specifically introduced the “number of negative equity cases” as a key indicator for assessing the health of residential balance sheets, and combined this with the “implicit inventory destocking cycle” to determine the equilibrium point between supply and demand. In terms of credit analysis, we employed a cash flow coverage ratio framework and a refinancing feasibility analysis framework, distinguishing between companies that rely on their own cash generation or those that depend on debt restructuring to manage maturity pressures, thereby providing tailored bond allocation recommendations.

Methodology notes

• Industry/Industrial Analysis FrameworkSupply-and-Demand Framework

  Implied Inventory Year

  The theoretical inventory digestion period is calculated by dividing the current potential supply by the rolling sales volume over the past 12 months. The research report notes that this metric in Hong Kong has declined to 4.6 years, falling within the historical normal range of 4–6 years, indicating that the supply-demand balance has shifted from oversupply back to equilibrium—making it an important leading indicator of price support.

• Fixed Income and Credit AnalysisInterest Rate Spread and Asset Quality

  Cash-to-Short-Term Debt Ratio and Refinancing Path Analysis

  Immediate repayment risk is assessed by comparing a company’s available cash to its short-term interest-bearing debt. When the ratio falls below a safety threshold—such as Vanke’s 0.36x—and no new financing is in sight, analysts employ game-theoretic modeling to infer the most likely debt‑resolution scenario (e.g., partial repayments combined with extensions), rather than simply assuming default.

• Cycle and Business Cycle FrameworkAnalysis of the Economic Turning Point

  The size of negative equity serves as a lagging indicator for confirming the market bottom.

  The number of negative assets typically rises in the later stages of a housing price decline and then rapidly declines once housing prices stabilize and begin to rebound. The research report emphasizes that this indicator plummeted 46% month-on-month—not as a leading indicator of a bottom, but rather as a concurrent confirmation that the previous round of price adjustments has concluded and household balance sheets have begun to recover.

Asset mapping & comparison

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

• Longhu Group (0960.HK)

  Beneficiary: Rated by Fitch with an upgraded outlook, and the effectiveness of operational transformation is recognized.

  Strengths

  Investment property income provides a buffer, with ample cash reserves and strong debt-servicing capacity.

  Comparison

  Compared to troubled real estate developers such as Vanke, their credit ratings are significantly better.

  Risks

  Commercial real estate rental yields have fallen short of expectations.

• Vanke (2202.HK / 000002.SZ)

  Affected/Under Observation: Weak first-quarter results and significant short-term debt-servicing pressures.

  Weaknesses

  Core net profit and FCF both turn negative, and the cash-to-debt ratio drops to 0.36x.

  Comparison

  Credit profile weaker than that of Longfor and state-owned developers.

  Risks

  Without an overall restructuring plan, debts maturing in June or July may need to be extended.

• Hang Lung Properties (0012.HK)

  Beneficiary: New property launches feature flexible pricing strategies and demonstrate strong sales performance.

  Strengths

  The One Victoria Cove project has achieved 100% sales, and there is room for price increases in subsequent phases.

  Comparison

  Recently, the stock has outperformed its peers, with a weekly gain of 6%.

  Risks

  High pricing for new projects has led to a slowdown in sales.

• Sun Hung Kai Properties (0016.HK)

  Key Focus: The upcoming launch of the Lime SPARK project

  Strengths

  The new project in Tsuen Wan has achieved an oversubscription rate of 26 times, with an expected sell-through rate exceeding 90%.

  Comparison

  One of J.P. Morgan's top picks for Hong Kong stocks

Key data

• Second-hand home sales in 12 mainland Chinese citiesYear-on-year +23%Last week, year-on-year growth was +13%, with a cumulative increase of +2% since the beginning of the year.
• New Home Sales in 20 Mainland CitiesYear-on-year -8%Last week saw a year-on-year increase of +17%, with a cumulative decline of -10% since the beginning of the year.
• Hong Kong cases of negative equity11,400 casesQ1 2026 data: down 46% quarter-on-quarter and 72% from the peak.
• Hong Kong Property Price Index YTD Increase+7.7%It is only 2.3 percentage points short of the full-year forecast target of 10–15%.
• Vanke’s Cash-to-Short-Term Debt Ratio0.36xFurther deteriorated from 0.42x in 2025
• Easily Available Cash at Longfor18 billion RMBAnnual free cash flow available for distribution ranges from RMB 5 to 10 billion, sufficient to cover maturing debt over the next three years.

Impact & implications

In the equity market, a surge in secondhand‑home sales and the easing of Shenzhen’s housing policies propelled the Chinese property sector to outperform the Hang Seng Index by 7% last week, with Sunac Services, China Overseas, Vanke, and Jinmao leading the gains. In the bond market, the upgrade of Longfor’s rating outlook has bolstered the allocation appeal of high‑quality private‑sector corporate bonds, while expectations surrounding debt restructuring at distressed developers such as Vanke highlight the volatility risks inherent in high‑yield bonds. For Hong Kong–listed local developers, diverging pre‑sale absorption rates suggest that pricing strategy will be a pivotal determinant of cash‑flow recovery speed, with aggressive price hikes potentially triggering a stall in sales.

Risks

• New home sales in mainland China have failed to recover as expected, dragging down the recovery of property developers' cash flow.
• Some property developers’ debt-restructuring negotiations have collapsed, resulting in a material default.
• Hong Kong’s new property market pricing has become overly aggressive, leading to a sharp decline in the sales rate.
• Geopolitical conflicts or macroeconomic fluctuations affect buyer confidence.

What to watch

• The sustainability of new-home and existing-home transaction data following the mainland China’s May Day holiday.
• Announcement on the Specific Plan for the Disposition of Vanke’s Debt Maturing in June–July
• The sales performance of new projects such as Lime SPARK and Phase II of Highwood, which are about to be launched in Hong Kong
• Does the Central China Valuation Index (CVI) remain above 60 to confirm the upward trend in bank valuations?