China real estate high-frequency indicators continue to weaken, and home price declines may accelerate in 3Q

Overview

This report focuses on China real estate sector high-frequency indicators for June. Morgan Stanley points out that existing-home listing prices continued to decline, total listing volume remained elevated, and brokerage store visits unexpectedly cooled further, together with a rapid weakening in both new-home and existing-home sales in June, which may drive a slight acceleration in quarter-on-quarter home price declines in 3Q. The report remains cautious on a recovery in the physical market, but believes some tier-one cities may still see mild improvement due to better supply-demand structures.

Core views

The core view is that it is not advisable to bet too early on a recovery in sector beta in the short term. The report believes that uncertainty around sales recovery, potentially weak 1H26 earnings, limited upside room for policy at the July Politburo meeting, and fund flow disruptions will all constrain sector valuation recovery. Although the recent share price decline has brought sector P/B valuations back to historical lows, the strategy should still be to wait for a better entry point and continue selecting high-quality developers with credible self-help capability, relatively stable EPS prospects, and medium-term rerating potential.

Analysis framework

The report mainly assesses changes in demand and supply through city-level existing-home listing prices, listing volumes, new listing volumes, and brokerage store visit volumes, and combines this with trends in new-home and existing-home sales, expectations for policy catalysts, fund flows, and sector valuation positioning to form investment recommendations. At the stock level, it uses 2026e NAV, DCF, capitalization rates for investment properties, and a developer scorecard to evaluate target prices and risk-reward.

Methodology notes

• Industry high-frequency trackingMonitoring of existing-home listing prices, listing volumes, and visit volumes

  Use month-on-month, year-on-year, and city-share metrics to gauge the temperature of the physical market

  The report tracks existing-home listing prices in 85 cities, listing volumes in about 50 cities, and brokerage store visits in 45 cities to assess sales momentum, supply pressure, and price transmission risk.

• Valuation methods2026e NAV valuation

  DCF for development properties, capitalization rates for investment properties, and net debt adjustments

  The base valuation for developers' target prices comes from 2026e NAV, with development properties valued using DCF and WACC, investment properties using capitalization rates, and then net debt deducted.

• Valuation discountDeveloper scorecard

  Scoring on land bank, execution, scale, growth, profitability, financing, and leverage

  The report applies a 30%-45% NAV discount based on the developer scorecard, with different discounts reflecting differences in asset quality, financing ability, and operating resilience.

• Rating systemMorgan Stanley relative rating

  Overweight, Equal-weight, and Underweight represent judgments on 12-18 month risk-adjusted total return relative to sector coverage

  The sector view in this report is In-Line, meaning the analyst expects sector performance over the next 12-18 months to be broadly in line with the relevant market benchmark.

Asset mapping & comparison

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

• China real estate sector

  Subject of the report

  Strengths

  Existing-home sales in tier-one cities are relatively resilient, and some cities have better supply-demand structures, which may lead to mild upside.

  Weaknesses

  Existing-home listing prices continue to fall, listing volumes remain elevated, and visit volumes are cooling, increasing uncertainty around sales recovery.

  Comparison

  In June, listing prices in tier-one cities fell only 0.1% month on month, better than the average 0.5% month-on-month decline across 85 cities.

  Risks

  The 3Q slack season, combined with fewer visits, may push existing-home sales in major cities into negative year-on-year growth and increase pressure on transaction prices.

• China Resources Land Ltd. (1109.HK)

  A relatively preferred high-quality alpha name in the report

  Strengths

  The report believes it has resilient EPS prospects and medium-term rerating potential; 2026e NAV is HK$60.88/share and the target price is HK$30.00.

  Weaknesses

  It is still affected by sector sales recovery, shopping mall opening pace, and operating performance of investment properties.

  Comparison

  Against a backdrop of pressured sector beta, the report believes its current valuation offers relatively more attractive risk-reward.

  Risks

  Weaker-than-expected contracted sales and slower-than-expected openings of new shopping malls may weigh on performance.

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

  A relatively preferred high-quality alpha name in the report

  Strengths

  The report believes it has resilient EPS prospects and medium-term rerating potential; 2026e NAV is HK$29.69/share and the target price is HK$13.50.

  Weaknesses

  Margins, land acquisition pace, and contracted sales growth remain key sensitivities.

  Comparison

  The report lists it as one of the names that can still be relatively attractive even without a clear recovery in the physical market.

  Risks

  Weaker-than-expected gross margin, slower-than-expected land acquisition, or weaker sales would affect valuation realization.

• Seazen Group Ltd (1030.HK)

  A relatively preferred high-quality alpha name in the report

  Strengths

  2026e NAV is HK$4.80/share and the target price is HK$1.33; the report believes its risk-reward is more attractive at the current valuation.

  Weaknesses

  Contracted sales, launches of new investment property projects, rental growth, and margins may all affect earnings.

  Comparison

  Compared with the sector as a whole, the report places greater emphasis on its self-help alpha and medium-term rerating potential.

  Risks

  Weaker-than-expected contracted sales, faster-than-expected margin compression, or weaker-than-expected rental growth.

• Seazen Holdings Company Ltd. (601155.SS)

  A relatively preferred high-quality alpha name in the report

  Strengths

  2026e NAV is Rmb35.84/share and the target price is Rmb10.26; the report believes it has resilient EPS prospects and medium-term rerating potential.

  Weaknesses

  There is uncertainty around development margins, recurring income growth, and the pace of shopping mall asset exits.

  Comparison

  The report views it together with 1030.HK as Seazen-related names with more attractive risk-reward at current valuations.

  Risks

  Faster-than-expected compression in development margins, weaker-than-expected recurring income growth, and slower-than-expected injection of shopping malls into private REITs.

Key data

• Existing-home listing prices85 cities: -0.5% MoM and -10.5% YoY in JuneThe pace of decline was the same as in May; the report discloses 6M26 at -2.6%.
• Breadth of city declines94% of sample cities declined month on monthThe share of cities with accelerating declines was 56%, below 64% in May.
• Performance of tier-one citiesListing prices: -0.1% month on monthDeclines in tier-one cities were relatively stable, which the report attributes to more resilient existing-home sales.
• Total listing volumeAbout 50 cities: +0.2% month on month in JuneAbout 65% of sample cities saw month-on-month increases in total listing volume, above about 59% in May.
• New existing-home listings-3% MoM, -13% YoY76% of sample cities saw month-on-month declines in new listings, above 67% in May.
• Listing volume relative to end-2025Total listing volume rose in 45% of sample cities, and 35% hit record highsThis indicates inventory pressure remains high in some cities.
• Brokerage store visits45 cities: average -16% MoM in June, flat YoYThe report believes one reason is fading policy effects and weaker momentum after demand was released from March to May.
• 3Q market viewQuarter-on-quarter home price declines may accelerate slightlyThe report expects existing-home sales in major cities may turn negative year on year in 3Q.
• Sector viewAsia Pacific Industry View: In-LineThis corresponds to sector performance broadly in line with the relevant market benchmark over the next 12-18 months.
• Preferred names1109.HK、1908.HK、601155.SS、1030.HKThe report believes these companies offer more attractive risk-reward at current valuations.
• Target prices1908.HK HK$13.50；1109.HK HK$30.00；1030.HK HK$1.33；601155.SS Rmb10.26From the sector coverage table.

Impact & implications

The investment implication is that the sector is better suited to bottom-up stock selection in the short term rather than broad-based position adding. Weakening high-frequency indicators may weigh on sales, prices, and earnings expectations, while policy and fund flows are still insufficient to drive a broad rerating of the sector; however, after valuations have fallen back to historical lows, companies with resilient EPS, financing advantages, asset operation capability, and self-help alpha may still have opportunities for relative returns even without a clear recovery in the physical market.

Risks

• Declines in existing-home listing prices may further transmit to transaction prices, causing home price declines to accelerate in 3Q.
• Brokerage store visits continue to decline, and combined with seasonal weakness, may cause existing-home sales in major cities to turn negative year on year.
• Rising uncertainty around sales recovery may weigh on 1H26 earnings and market confidence.
• Policy upside at the July Politburo meeting may be limited, leaving the sector short of catalysts.
• Fund flow disruptions may continue to weigh on sector valuation recovery.
• Weaker-than-expected contracted sales by developers would affect revenue, cash flow, and valuation discounts.
• Margin compression, slower rental growth, or slower-than-expected shopping mall openings would weaken stock-specific alpha.
• If land acquisition or asset exit progress is slower than expected, the medium-term rerating thesis for some companies may be delayed.

What to watch

• Whether existing-home sales in major cities turn to negative year-on-year growth in 3Q.
• Whether the month-on-month decline in existing-home listing prices across 85 cities widens further from -0.5%.
• Whether total listing volume across about 50 cities continues to rise, and whether the share of cities hitting record highs expands.
• Whether brokerage store visits across 45 cities can recover, or whether they continue to run below seasonal patterns.
• Whether the July Politburo meeting delivers better-than-expected property support policies.
• Developers' 1H26 earnings, gross margins, and cash flow performance.
• Progress in contracted sales, investment property operations, shopping mall openings, and asset exits for CR Land, C&D, and Seazen.