China property data deteriorated across the board in June, and downside pressure on home prices may intensify in 3Q

Overview

This report is Morgan Stanley's industry research on China's real estate sector. Its core conclusion is that property fundamentals deteriorated simultaneously in June across sales, home prices, construction, and investment. The report notes that the sales rebound since May has reversed, and with weak homebuying sentiment, fading policy effects and pent-up demand, and a shrinking sellable inventory pipeline, sales and home prices still face pressure in 3Q.

Core views

The report believes that the decline in sales continued to widen in June, with both cumulative sales value and sales area in 6M26 posting double-digit declines. On the construction side, declines in new starts and completions widened, developers remained cautious on land acquisition, and downside pressure on real estate investment deepened. Existing-home sales may turn negative YoY in 3Q and could drive faster MoM home price declines in most cities; meanwhile, tier-one cities may still sustain modest price gains due to better supply-demand dynamics. In terms of investment strategy, the report does not recommend adding broadly to the sector, but instead emphasizes selectively choosing quality developers with credible self-help improvement potential amid near-term headwinds, limited policy upside from the July Politburo meeting, and ongoing fund-flow disruptions.

Analysis framework

The report mainly uses National Bureau of Statistics data on sales, prices, starts, completions, and real estate investment, combined with real-time existing-home sales in high-tier cities, land acquisition by the top 100 developers, developer NAV estimates, and scorecard discount methods to assess cyclical pressure in the sector and stock-specific risk-reward.

Methodology notes

• Valuation methodsNAV/DCF/cap rate valuation

  Net asset value estimation and discount

  For covered developers, the report builds 2026e NAV using DCF for development properties, capitalization rates for investment properties, and net debt, then applies about a 30%-45% discount based on the developer scorecard.

• Industry judgmentIndustry view In-Line

  Industry performance judgment relative to benchmark

  Morgan Stanley's In-Line indicates that the analyst expects the covered industry basket to perform broadly in line with the relevant market benchmark over the next 12-18 months.

• Risk assessmentDeveloper scorecard

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

  The report uses the scorecard to determine the NAV discount level, reflecting differences among developers in operating quality and balance-sheet strength.

Asset mapping & comparison

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

• China Resources Land Ltd. (1109.HK)

  One of the quality China property stocks favored by the report

  Strengths

  High scores in land bank, execution, scale, growth, profitability, financing, and leverage; 2026e NAV is estimated at HK$60.88/share with a 30% discount applied.

  Weaknesses

  Still affected by sector sales slowdown and shopping mall opening pace.

  Comparison

  Compared with weaker-quality developers, its financing and asset-quality advantages are more pronounced.

  Risks

  Contracted sales weaker than expected; shopping mall openings slower than expected.

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

  One of the report's favored risk-reward names

  Strengths

  2026e NAV is estimated at HK$29.69/share; the scorecard shows strong performance in land bank, execution, scale, growth, and financing.

  Weaknesses

  Sensitive to development gross margin and land acquisition pace.

  Comparison

  Considered to offer attractive risk-reward at the current valuation.

  Risks

  Gross margin weaker than expected; land acquisition slower than expected.

• Seazen Holdings Company Ltd. (601155.SS) / Seazen Group Ltd (1030.HK)

  Seazen-related names favored by the report

  Strengths

  The report believes the current valuation offers attractive risk-reward; investment properties and commercial operations provide some support.

  Weaknesses

  Its scorecard shows relatively weaker land bank and growth scores, and the NAV discount is 40%.

  Comparison

  More reliant on self-help improvement and commercial real estate operating performance.

  Risks

  Contracted sales weaker than expected, development gross margin compressing faster than expected, recurring income growth weaker than expected, and shopping mall injections into private REITs slower than expected.

Key data

• Nationwide sales value in June同比-13.9%Rebased measure; May was 同比-9.3%.
• Nationwide sales area in June同比-14.3%Rebased measure; May was 同比-13.2%.
• Cumulative sales value in 6M26同比-13.6%The cumulative decline in sales value remained double-digit.
• Cumulative sales area in 6M26同比-11.6%Cumulative decline in sales area.
• Primary home prices in 70 cities in June环比-0.2%National Bureau of Statistics 70-city home price index.
• Existing-home prices in 70 cities in June环比-0.3%Existing-home prices continued to decline.
• New starts in June同比-26%Construction activity weakened further.
• Completions in June同比-25%The decline in completions widened.
• Real estate investment in 6M26同比-18.0%5M26 was 同比-16.2%, with the decline widening further.
• Land acquisition by the top 100 developers in 6M26同比约-40%Shows developers remain cautious on land banking.

Impact & implications

At the sector level, simultaneous weakness in sales and construction data means cash flow, willingness to start projects, and investment demand remain under pressure, while falling home prices in 3Q may further weigh on buyer confidence. From an asset-allocation perspective, the report prefers defensiveness and selective alpha rather than a broad sector reversal trade; quality SOE/central SOE developers or developers with advantages in investment properties, financing, and execution are relatively more favored.

Risks

• Existing-home sales may turn negative YoY in 3Q and drag primary home sales lower.
• MoM home price declines may accelerate in most cities, creating a negative feedback loop of buyer wait-and-see behavior and falling prices.
• Developers may remain cautious on land acquisition, suppressing real estate investment and future sellable resources.
• Policy upside from the July Politburo meeting may be limited.
• Ongoing fund-flow disruptions may suppress valuation recovery in the sector.
• At the stock level, there are risks of weaker-than-expected contracted sales, gross margin, rental growth, and commercial project openings.

What to watch

• Whether real-time existing-home sales in high-tier cities turn negative YoY in 3Q.
• Whether MoM declines in primary and existing-home prices across the 70 cities widen.
• Whether land acquisition value and land banking willingness among the top 100 developers improve.
• Whether declines in real estate investment, new starts, and completions continue to widen.
• The July Politburo meeting and the strength of follow-up property support policies.
• The progress of contracted sales, shopping mall openings, rental growth, and asset disposals at CR Land, C&D, and Seazen.