Goldman Sachs expects Shanghai and Shenzhen to bottom out by end-2026 and lead China's real estate recovery

Overview

Using the recovery in Hong Kong's housing market as a reference, the report discusses whether China's first-tier cities, especially Shanghai and Shenzhen, can replicate a similar rebound path and what that means for Chinese property developers' valuations and earnings. Goldman Sachs believes Shanghai and Shenzhen are already aligning with Hong Kong on some key fundamental drivers, and expects these two cities to lead the national housing recovery, bottoming by end-2026 and pulling forward the rebound by 6 to 24 months versus other first- and second-tier cities.

Core views

The core view is: first, Hong Kong's housing market is already in an early recovery phase, providing observable reference points for prices, valuations and share prices; second, Shanghai and Shenzhen have an improving base in population inflows, growth in strategic-industry income, relatively constrained supply and potential stock-market wealth effects, although affordability and holding costs remain less favorable than in Hong Kong; third, strong SOE developers have greater land and profit exposure in Shanghai and Shenzhen, so if home prices rebound in their core markets, their PB and NAV rerating could be more pronounced; fourth, the report has already incorporated a 15% cumulative increase in Shanghai and Shenzhen home prices from end-2025 to end-2028 into its model.

Analysis framework

The report uses a cross-market benchmarking approach, comparing the housing cycles, population and talent policies, industrial structure, mortgage costs, rental yields, supply inventory, land-market shares and capital-market wealth effects of Hong Kong, Shanghai and Shenzhen, and then mapping the findings to covered developers' earnings, NAV and target prices.

Methodology notes

• Real estate cycle analysisFour-factor housing recovery framework

  Population, income, affordability and supply

  The report uses population inflows and household-registration policies, industrial income growth, mortgage burden and rental yields, as well as new-home and second-hand supply, to judge whether Shanghai and Shenzhen have the conditions for a recovery.

• Cross-market benchmarkingHong Kong, Shanghai and Shenzhen home-price synchronicity analysis

  Lead-lag relationship and historical recovery benchmark

  The report reviews Hong Kong's upcycle around the financial crisis and the subsequent price performance of Shanghai and Shenzhen, and concludes that an up-quarter in Hong Kong has historically been followed by positive returns in Shanghai and Shenzhen over the next four quarters with a probability of about 70% to 80%.

• Valuation methodologyNAV target price and PB rerating

  Pass-through from higher home-price assumptions to earnings, NAV and target prices

  The report builds in a cumulative 15% rise in Shanghai and Shenzhen home prices from end-2025 to end-2028, and estimates the impact on covered developers' 2028e core earnings, 2026e year-end NAV and 12-month NAV-based target prices; OCT's target price also uses a SOTP approach based on development business NAV and tourism business P/E.

Asset mapping & comparison

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

• Strong SOE developers

  Primary beneficiary asset

  Strengths

  They acted as consolidators during the industry downturn, had a high share of land acquisitions in Shanghai and Shenzhen in 2024-2025, and maintain relatively healthy cash and short-term debt coverage.

  Weaknesses

  Overall property demand is still at an early stage of recovery, and ROE has already compressed versus prior upcycles.

  Comparison

  Compared with Hong Kong developers, current PB is similar but ROE is higher, and the valuation rerating potential is more sensitive to core-city home prices.

  Risks

  If Shanghai and Shenzhen home prices do not bottom around end-2026, or if land-investment efficiency deteriorates, rerating may be delayed.

• COLI

  One of the covered companies with leading profit exposure to Shanghai and Shenzhen

  Strengths

  The report notes that Shanghai and Shenzhen contribute a high share of its profit exposure and reiterates a Buy rating.

  Weaknesses

  Sensitive to home-price assumptions in core cities.

  Comparison

  Among covered developers, it is one of the names most sensitive to upside from higher Shanghai and Shenzhen home-price assumptions.

  Risks

  Sales absorption in core cities, policy timing and margin volatility.

• CMSK

  One of the covered companies with leading profit exposure to Shanghai and Shenzhen

  Strengths

  The report notes that it has leading exposure to the Shanghai and Shenzhen markets.

  Weaknesses

  A Neutral rating indicates that valuation or other company-specific factors limit the upside case.

  Comparison

  It belongs with COLI among the covered names with relatively high Shanghai and Shenzhen exposure.

  Risks

  Home-price recovery weaker than expected, and project margins and sales pace lagging expectations.

• CR Land

  Benchmark asset for high-end residential and commercial operations

  Strengths

  The report compares it with SHKP, highlighting similarities in high-end residential development, luxury and lifestyle commercial operations, and a strong rental portfolio.

  Weaknesses

  Rerating still depends on the market repricing the mainland core-property and commercial-operations capability.

  Comparison

  The comparison with SHKP suggests there may be upside in CR Land's valuation multiples.

  Risks

  Commercial-operation growth, rental performance and residential-sales recovery falling short of expectations.

• Hong Kong developer sample

  Recovery benchmark group

  Strengths

  Hong Kong's housing market has already rebounded from the low, and developers' share-price performance has been significantly ahead.

  Weaknesses

  Hong Kong is more open economically and has advantages in foreign buyer access and capital flows, which cannot be fully replicated in mainland cities.

  Comparison

  Chinese strong SOE developers have higher ROE than Hong Kong peers, but their valuations do not yet reflect a sufficient premium.

  Risks

  If Hong Kong's recovery path slows, its usefulness as a leading indicator for Shanghai and Shenzhen weakens.

Key data

• Hong Kong home-price recoveryRebounded 8% from the March 2025 lowHong Kong home prices had previously corrected 28% from the September 2021 peak.
• Shanghai and Shenzhen home-price correctionsShanghai down 39% from peak, Shenzhen down 41% from peakAs of the report date, both had only rebounded about 1% year to date from the January 2026 low.
• Expected home-price pathShanghai and Shenzhen cumulative 15% increase from end-2025 to end-2028The report expects both cities to bottom out by end-2026 and recover first.
• Earnings impact2028e core earnings up by 5% on averageDriven by higher average selling price assumptions in Shanghai and Shenzhen.
• NAV and target-price impact2026e year-end NAV and 12-month NAV-based target prices up by 2% on averageApplies to the covered-developer universe.
• Land-market shareStrong SOE developers accounted for about 60% of Shanghai and Shenzhen land sales value and about 50% of land area in 2024-2025Shows their continued share gains in core cities.
• Land exposureShanghai and Shenzhen accounted for about 30% of the combined land acquisitions by the six strong SOE developers in 2024-2025Higher than the low double-digit percentage average in 2018-2023.
• Valuation comparisonStrong SOE developers average 0.5x 2026e PB and 5% 2026e-2027e ROE; Hong Kong developers are around 0.5x PB and 3% ROEThe report believes China's strong SOE developers have not rerated enough.
• Historical rerating rangeHong Kong developers' PB expansion of 0.1x to 0.3x in the early recovery phase; Chinese developers' PB expansion of 0.2x to 1.0x in similar phasesHistorical experience is used to support the potential rerating room.

Impact & implications

If Shanghai and Shenzhen home prices stabilize and recover as expected, the most direct beneficiaries will be strong SOE developers with sizable core-city land banks, solid balance-sheet capacity and strengths in high-end residential and commercial operations. On the earnings side, higher ASPs and better project margins may improve profitability; on the asset side, NAV may be revised upward; and on the capital-market side, PB rerating could release valuation upside.

Risks

• Shanghai and Shenzhen housing affordability is still weaker than Hong Kong's, mainly due to larger unit sizes and heavier mortgage burdens.
• Shanghai and Shenzhen rental yields remain below mortgage rates, so holding costs have not yet turned positive.
• Mainland cities have capital-account controls and foreign-buyer restrictions, making them less open than Hong Kong.
• If the A-share rally cannot be sustained, the stock-market wealth effect supporting housing demand may weaken.
• If second-hand listing supply rises again or new-home inventory pressure expands, the timing of the price bottom could be delayed.
• Uncertainty around policy stimulus, mortgage rates, household-registration easing and land-supply pace will affect the speed of recovery.
• Developers' target prices and NAV are sensitive to Shanghai and Shenzhen ASP assumptions; if the 15% home-price rise assumption does not materialize, the upside to earnings and valuation upgrades will narrow.

What to watch

• Month-on-month changes in Shanghai and Shenzhen new-home and second-hand transaction volumes, listings and prices.
• The spread between Shanghai and Shenzhen rental yields and mortgage rates, deposit rates and 10-year government bond yields.
• A-share market trends and their transmission to home-buying confidence among high-net-worth individuals.
• The quality of land supply in core areas, premium rates and the land-acquisition share of strong SOE developers.
• Whether household-registration policies, talent-attraction policies and home-purchase qualification policies are further relaxed.
• Sales absorption and margins of Shanghai and Shenzhen projects at companies such as COLI, CMSK, CR Land, Jinmao and Greentown.
• Whether Hong Kong housing prices, transaction volumes and developers' PB rerating continue.