Secondary home sales beat expectations, but China real estate recovery still needs more evidence

Overview

This report discusses the reasons behind, sustainability of, and investment implications of recent better-than-expected sales data in China real estate. Morgan Stanley points out that since March, secondary home transaction performance in some tier-1 and tier-2 cities has been better than market expectations, and has improved further so far in April off a low base; however, the report emphasizes that the recovery is currently concentrated mainly in a small number of core cities and lower-priced homes, which is still insufficient to prove that the nationwide property cycle has stabilized.

Core views

The core view is that “short-term data are better than expected, but the long term still requires cautious validation.” The report believes the recent improvement has been driven by policy easing, increased attractiveness of lower-priced homes, and the release of previously pent-up demand, but as the marginal effect of policy fades and household sentiment may weaken again in the seasonally slow second quarter, sales momentum may cool. More importantly, the improvement in sales has not spread broadly, with most cities still flat or declining year over year, and overall China housing market beta may remain negative until most tier-1 and tier-2 cities stabilize.

Analysis framework

The report combines daily average transaction data for primary and secondary homes in key cities, year-over-year and month-over-month changes, AlphaWise household surveys, secondary home listings volume, home price performance, and developer valuation models for its assessment; at the company level, it evaluates key covered names using 2026 expected NAV, DCF, capitalization rates, developer scorecards, and discount rates.

Methodology notes

• High-frequency market data trackingMonitoring primary and secondary home transactions in key cities

  Assess the breadth and sustainability of sales improvement through daily average transactions and year-over-year and month-over-month changes in 12 key cities.

  The report pays particular attention to the improvement in secondary home transactions in cities such as Shanghai, Beijing, Nanjing, and Xiamen, while also comparing the still-weak primary home market to judge whether the improvement comes from a genuine demand recovery or from market share shifts.

• Household sentiment surveyAlphaWise China Real Estate Survey

  Use survey results on households’ views of housing as an investment and their home-buying intentions to help assess the quality of demand recovery.

  The latest survey shows that after a prolonged weak market, households no longer generally view housing as a good investment, weakening the previous logic of home prices moving in the same direction across cities.

• Company valuation2026e NAV, DCF, capitalization rates, and developer scorecard

  Estimate net asset value per share based on development properties, investment properties, and net debt, then apply discounts based on dimensions such as land bank, execution, scale, growth, profitability, financing, and leverage.

  The report applies discount rates in the 30%-45% range to CR Land, C&D, and Seazen, and combines differing business mix, financing, and leverage quality to derive target prices and relative preferences.

Asset mapping & comparison

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

• China real estate sector

  Research topic and industry allocation target

  Strengths

  Secondary home transactions in core cities are improving, policy support remains in place, and home prices in some cities have risen slightly month over month or seen narrower declines.

  Weaknesses

  The improvement is concentrated in a few cities and lower-priced homes, primary home sales remain weak, and confidence in housing as an investment has declined among households.

  Comparison

  Compared with previous market expectations, recent sales data are stronger; but compared with past property recovery cycles, this round still lacks breadth of diffusion and upgrade demand.

  Risks

  Seasonally slower sales in the second quarter, fading policy effects, continued home price adjustment, and the recovery once again proving to be a false start.

• China Resources Land Ltd. (1109.HK)

  One of the report’s preferred quality developers

  Strengths

  High investment property value, strong financing and leverage scores, and an Overweight rating from the report.

  Weaknesses

  Still affected by the overall property sales and development cycle.

  Comparison

  Has stronger quality attributes and balance sheet characteristics among covered developers.

  Risks

  Contracted sales below expectations and slower-than-expected openings of new shopping malls.

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

  One of the report’s preferred quality developers

  Strengths

  Upside could come from stronger-than-expected contracted sales and gross margin, and the report rates it Overweight.

  Weaknesses

  The business is more dependent on development properties, and earnings are sensitive to gross margin and land acquisition pace.

  Comparison

  Compared with defensive developers, its upside may depend more on delivery of sales and margins.

  Risks

  Gross margin weaker than expected and slower-than-expected land acquisition.

• Seazen Holdings Company Ltd. (601155.SS)

  One of the report’s preferred quality developers

  Strengths

  Stronger-than-expected contracted sales, new investment property openings, and investment property operations would support valuation recovery, and the report rates it Overweight.

  Weaknesses

  The profitability of the development business and growth in recurring income still need validation.

  Comparison

  Has an improvement story related to commercial real estate and investment properties, but its scorecard ratings for land bank, growth, and profitability are lower than some high-quality peers.

  Risks

  Development margin compression faster than expected, recurring income growth weaker than expected, and slower-than-expected injection of shopping malls into private REITs.

Key data

• Improvement in secondary home salesIn March, some tier-1 and tier-2 cities recorded year-over-year growth of 3%-14%, further improving to 7%-25% so far in AprilThe improvement mainly occurred in Shanghai, Beijing, and some cities such as Nanjing and Xiamen.
• Share of lower-priced homes in Shanghai and BeijingMore than 80% year to dateThis shows that transaction improvement is more concentrated in lower-priced homes, while upgrade demand remains weak.
• Average daily secondary home sales in 12 cities so far in April4,259 units, up 7% year over year and 3% month over monthFrom the report’s table covering 12 key cities.
• Average daily primary home sales in 12 cities so far in April1,605 units, about 0% year over year and about -11% month over monthPrimary home performance remains clearly weaker than secondary homes.
• Overall average daily sales in 12 cities so far in April5,857 units, up 5% year over year and about -1% month over monthThe overall improvement is moderate, with clear divergence across cities.
• Industry viewAsia Pacific Industry View: In-LineMorgan Stanley maintains a neutral view on the Asia Pacific China real estate sector.
• 1908.HK price and target priceCurrent price HK$14.06, target price HK$18.79Corresponding to C&D International Investment Group Ltd.
• 1109.HK price and target priceCurrent price HK$32.20, target price about HK$39.3Corresponding to China Resources Land Ltd.
• 601155.SS price and target priceCurrent price Rmb14.10, target price Rmb20.6Corresponding to Seazen Holdings Company Ltd.

Impact & implications

The investment implication is that the short-term rebound in sales may ease market concerns about further downside in China real estate, but it is still insufficient to support a full turn to optimism. The report recommends that investors continue to track primary home transactions, secondary home transactions, home prices, listings volume, and rental data from May to July; if clearer evidence of stabilization emerges in the physical market of major cities in the coming months, the view could shift to a more cautiously constructive stance. In stock selection, the report prefers developers with clear self-help improvement potential and advantages in financing and execution, rather than simply betting on a recovery in industry beta.

Risks

• After policy stimulus effects fade, sales may pull back in the seasonally slow second quarter.
• Household sentiment may weaken again, reducing the attractiveness of housing as an investment.
• The current improvement is concentrated mainly in lower-priced homes, and the adjustment in upgrade demand and mid- to high-end home prices may not be over.
• Primary home sales remain weak, and the growth in secondary homes may partly reflect market share shifting away from primary homes.
• Sales in most cities are still flat or declining, and evidence is insufficient that the recovery is spreading to a broader range of cities.
• If the data fail to continue over the next few months, this improvement may resemble the “false starts” of the past two years.
• At the covered company level, there are risks of weaker-than-expected contracted sales, gross margin, shopping mall openings, land acquisition, and recurring income growth.

What to watch

• Primary home sales volume from May to July.
• Secondary home sales volume from May to July.
• Month-over-month home price changes in Shanghai, Beijing, and major tier-2 cities.
• Whether secondary home listings volume continues to decline.
• Changes in rental levels and rental yields.
• Whether the share of lower-priced home transactions declines, and whether the improvement spreads to mid- to high-end and upgrade demand.
• Whether more tier-1 and tier-2 cities stabilize simultaneously.
• Contracted sales, gross margin, shopping mall openings, and investment property operating performance of CR Land, C&D, and Seazen.