China real estate sales declines narrowed in April, but the durability of the rebound remains in doubt

Overview

This report focuses on China's real estate sales, pricing, construction, and investment data for April 2026. It notes that, due to a low base, the year-on-year decline in residential sales narrowed in April, but the recovery in fundamentals is not firm. Construction activity weakened further, downward pressure on investment expanded, and buyer confidence, inventory de-stocking, and household income/leverage conditions continue to constrain the durability of any sales rebound.

Core views

The core view is that a slower sales decline does not mean a trend reversal. Morgan Stanley believes that second-hand home transactions in some higher-tier cities were stronger than expected in March-April, but the latest May data already show signs of slowing; meanwhile, second-hand listing volumes and listing prices in lower-tier and some second-tier cities continue to deteriorate. Given the recent diminishing marginal effect of city-level policies, still-elevated inventory, and fragile household sentiment, the report remains cautious about the sustainability of the sales rebound. After the share-price rebound, the sector's risk/reward looks more skewed to the downside, so the recommendation is to continue selecting companies with alpha logic.

Analysis framework

The report is based on National Bureau of Statistics data on real estate sales, prices, construction, completions, new starts, and investment, combined with real-time second-hand transaction data, listing volumes, and listing price changes in higher-tier cities to assess the quality and sustainability of the improvement in sales; it also uses developer NAV, DCF, WACC, capitalization rates, and a developer scorecard to discuss the valuation methodology and upside/downside risks of key companies.

Methodology notes

• Industry cycle analysisTracking sales, pricing, construction, and investment data

  Use sales value, sales area, house price indices, new starts, completions, and development investment to judge where the real estate cycle stands.

  The narrowing of the April sales decline was mainly driven by a low base; construction and investment data continued to worsen, indicating that developers remained cautious about land acquisition and new starts.

• Valuation methodologyNAV discount approach and DCF

  Use DCF for development assets, capitalization rates for investment properties, and then apply a NAV discount based on the developer scorecard.

  The report applies WACC, capitalization rates, net debt, and NAV discount ranges of 30%-45% to China Resources Land, C&D, and Seazen respectively, reflecting land bank, execution, scale, growth, profitability, financing, and leverage dimensions.

• Equity rating systemMorgan Stanley relative ratings and sector view

  Ratings such as Overweight, Equal-weight, and Underweight reflect risk-adjusted total return relative to the coverage universe; sector views include Attractive, In-Line, and Cautious.

  This report's sector view is Asia Pacific Industry View In-Line, meaning the expected performance over the next 12-18 months is roughly in line with the relevant benchmark, but the body of the report remains cautious on the durability of China's real estate fundamentals.

Asset mapping & comparison

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

• China Resources Land Ltd. (1109.HK)

  One of the preferred quality names, benefiting from strong shopping mall operations and C-REIT potential.

  Strengths

  Scores highly on the developer scorecard for land bank, execution, scale, growth, profitability, financing, and leverage; investment property NAV makes a large contribution.

  Weaknesses

  Valuation still depends on contract sales and the pace of new mall openings.

  Comparison

  Compared with some peers in the coverage universe, it has stronger financing and leverage scores, and its NAV discount is 30%, lower than some peers.

  Risks

  Upside risks include contract sales stronger than expected and faster-than-expected openings of new shopping malls; downside risks include contract sales weaker than expected and slower-than-expected mall openings.

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

  Viewed as an alpha name with residential integration and profit-recovery potential.

  Strengths

  Development property NAV accounts for the majority of value, and the report focuses on the visibility of gross margin and earnings recovery.

  Weaknesses

  The business is more dependent on the residential development cycle, so profit recovery could come under pressure if industry demand recovery remains insufficient.

  Comparison

  The NAV discount is 35%, higher than China Resources Land and lower than Seazen, reflecting better growth and financing scores but relatively weaker profitability scores.

  Risks

  Upside risk is stronger-than-expected gross margins; downside risks are weaker-than-expected gross margins and slower-than-expected land acquisition.

• Seazen Holdings Company Ltd. (601155.SS)

  One of the preferred quality names, with the logic resting on shopping mall operations, investment properties, and potential REIT exits.

  Strengths

  It has value tied to investment properties and shopping mall operations, and new investment property launches and operating improvements would support valuation.

  Weaknesses

  On the developer scorecard, land bank, scale, and growth scores are relatively low, and the NAV discount is 40%.

  Comparison

  Its discount is higher than that of China Resources Land and C&D, reflecting greater operating and balance-sheet risk.

  Risks

  Upside risks include contract sales stronger than expected, stronger-than-expected launches and operations of new investment properties, and faster-than-expected land acquisition; downside risks include faster-than-expected compression in development margins, weaker-than-expected recurring income growth, and slower-than-expected injection of shopping malls into private REITs.

• China real estate sector

  The sector view remains In-Line, but the fundamental view is cautious.

  Strengths

  The low base has narrowed the year-on-year sales decline, and second-hand transactions in first-tier cities have been stronger than expected at times.

  Weaknesses

  Inventory remains high, buyer sentiment is fragile, improvements in household income and leverage are limited, and construction and investment continue to weaken.

  Comparison

  Higher-tier cities are performing better than lower-tier cities, but divergence in listing volumes and listing prices across cities has widened further.

  Risks

  If the slowdown in transactions after May continues, market expectations for the sustainability of the sales rebound may be revised down.

Key data

• April national real estate sales valueYoY -7.6%The decline narrowed significantly from roughly -17% in the first three months of 2026, mainly due to a low base.
• April national real estate sales areaYoY -9.5%Close to the roughly -10% decline in the first three months of 2026, with only limited improvement.
• Sales value in the first four months of 2026YoY -15%The cumulative figure still shows that industry sales are in contraction territory.
• Sales area in the first four months of 2026YoY -10%The decline in area was smaller than the decline in value, suggesting ongoing price and mix pressure.
• 70-city home price indexNew homes and second-hand homes both -0.2% MoMThe report says the pace of price declines is similar to before, with no clear sign of stabilization yet.
• First-tier city home price performanceNew homes +0.1% MoM, second-hand homes +0.4% MoMFirst-tier cities performed relatively better, supported by stronger second-hand home turnover.
• Completions areaYoY -19%Construction activity remained weak.
• New starts areaYoY -27%The decline widened from before, indicating low developer willingness to start new projects.
• Real estate development investmentYoY -13.7% in the first four months of 2026The decline widened further from -11.2% in the first three months of 2026.
• China Resources Land valuation assumption2026e NAV HK$60.88/share, 30% discountIncludes development properties, investment properties, and net debt, and is based on the developer scorecard.
• C&D valuation assumption2026e NAV HK$28.90/share, 35% discountDevelopment properties use an 8.5% WACC, and the scorecard discount is higher than China Resources Land's.
• Seazen valuation assumption2026e NAV Rmb35.84/share, 40% discountDevelopment properties use a 9.2% WACC, and investment properties use a 6%-8% capitalization rate.

Impact & implications

The investment implication of the report is that there is limited room for a recovery in sector beta, especially after the recent share-price gains, and the risk/reward now looks more skewed to the downside. In the near term, the sales decline may remain narrow because of the base effect, but if second-hand transaction momentum slows, listing pressure increases, and household confidence does not improve, the market may refocus on insufficient demand recovery and declining development investment. At the portfolio level, the report recommends avoiding names that rely purely on a sector rebound and instead rotating toward companies with shopping mall operating capability, C-REIT potential, M&A integration, or profit-recovery pathways.

Risks

• The sales rebound is mainly driven by a low base, and the recovery in genuine demand may be insufficient.
• Second-hand transactions showed a rapid slowdown in the latest weekly data for May, so the strength seen in some months may not last.
• Inventories remain high, and listing volumes and listing prices in some second- and lower-tier cities continue to deteriorate.
• Household income and leverage improvements are limited, and buyer sentiment remains fragile.
• The marginal effect of city-level policies is diminishing, so further stimulus may have limited incremental impact on sales.
• New starts, completions, and investment by developers continue to decline, which may weigh on upstream and downstream sectors as well as industry earnings.
• After the recent share-price rebound, the sector's risk/reward is skewed to the downside.
• Morgan Stanley has investment banking or service relationships with some covered companies, so investors should be aware of potential conflict-of-interest disclosures.

What to watch

• Whether second-hand transactions in higher-tier cities continue to slow in May and beyond.
• Whether the 70-city new-home and second-hand home price indices show signs of stabilization.
• Whether listing volumes and listing prices in lower-tier cities continue to worsen.
• Whether the declines in real estate development investment, new starts, and completions widen further.
• Whether household income, mortgage leverage, and buyer confidence improve.
• Whether subsequent city-level policies can still generate incremental transactions.
• China Resources Land and Seazen's mall openings, operating performance, and progress on C-REIT/private REIT exits.
• Whether C&D's gross margin and profit-recovery path are delivered.