Rebound in Secondhand Transactions in First-Tier Cities, But Whether House Prices Are at Rock Bottom Remains to Be Seen
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Rebound in Secondhand Transactions in First-Tier Cities, But Whether House Prices Are at Rock Bottom Remains to Be Seen
UBS expert survey shows that after policy relaxations, transaction volumes for second-hand homes in Shanghai and Shenzhen have rebounded. However, the market exhibits a 'dumbbell-shaped' structural divergence, indicating no broad-based recovery of market sentiment. Institutions recommend real estate firms with successful model transformations and faster capital cycling.
- Policy relaxation (relaxation of housing fund loans) lowers interest rates, driving up transactions in first-tier cities.
- Shanghai's market response is 'dumbbell-shaped': demand for older small units and high-end luxury properties is active on both ends.
- About half of sellers use proceeds from home sales for upgrading, while the other half holds back; no broad-based recovery of market sentiment.
- Homeowners start increasing asking prices or withdrawing listings, but buyers still sensitive to price, with no synchronized improvement in demand.
- Massive construction over the past decade means supply exceeds demand; house prices drive rental levels rather than vice versa.
- Younger generations increasingly unwilling to take mortgages, especially if expecting to inherit family property, affecting long-term demand structures.
- Institutions recommend China Resources Land, China Resources Properties & Lifestyle, and Sunac Holdings (H-shares) for their transformation of business models and increase in ROE.
Report interpretation
Overview
On May 8th, UBS hosted an expert call on China’s real estate sector featuring the general manager of Centaline Property’s East China and Shanghai divisions to discuss whether housing prices in Shanghai and Shenzhen have hit rock bottom. Experts noted that under relaxed policies—especially loosened housing fund loan terms which effectively lowered interest rates—transaction volumes for second-hand homes in major cities have rebounded. Nonetheless, there has been no broad-based recovery in market sentiment, with current demand primarily driven by genuine owner-occupiers and showing a distinctive 'dumbbell-shaped' structure. Based on this analysis, the firm maintains its positive stance towards China Resources Land, China Resources Properties & Lifestyle, and Sunac Holdings (H-shares), believing these companies possess advantages in transforming their business models and accelerating capital circulation, enhancing ROE and competitiveness.
Core views
Transaction Volumes and Market Structure: After policy relaxations, transaction volumes for secondary markets in top-tier cities showed some rebound, but Shanghai exhibited a typical ‘dumbbell’ pattern—one end being strong demand for older smaller apartments (driven by basic needs), and the other end seeing affluent buyers interested in high-quality luxury properties (for asset allocation and scarcity). The middle range of properties saw relatively little activity. Seller and Buyer Mindset Changes: Approximately half of homeowners selling their properties chose to upgrade through another purchase, while the other half remained cautious, investing elsewhere or continuing to wait. Declines in listing numbers can be attributed to: last year’s December onwards, affordable listings were gradually consumed, coupled with changing seller mindsets leading some to raise prices or delist. However, buyers still show significant sensitivity to price, often abandoning purchases if prices are too high. There hasn’t been a corresponding turn-up in buyer sentiment. Developer Behavior and Supply-Demand Logic: Following marginal improvements in primary sales in April, most developers maintained caution to clear inventories without pushing for higher prices, reducing discounts only slightly. Experts emphasized that massive construction over the past decade resulted in oversupply. This supply-demand imbalance makes the pricing logic in China’s real estate market “price-driven rent” rather than “rent-driven price,” meaning rental levels typically follow price adjustments passively instead of using rental yields to reverse-calculate property valuations. Changing Homeownership Attitudes: Social changes have led younger generations to be less willing to shoulder mortgages, particularly when they expect to inherit parental property—an influence further affecting long-term demand structures. Affordable rental housing serves as a transitional solution meeting short-term basic needs, fundamentally different from commercial housing positioning. Recommendation Rationale: The report favors China Resources Land (due to business model transformation and accelerated capital cycle boosting ROE), China Resources Properties & Lifestyle (owing to projected growth in third-party managed projects over the next five years, strengthening competitive edge), and Sunac Holdings (thanks to business model transformation and accelerated capital cycles).
Analysis framework
This report adopted a methodology combining 'expert surveys, top-down industry assessment, and bottom-up company mapping'. Initially, it conducted telephone interviews with frontline market experts (executives from Centaline Property) to gather micro-level insights including shifts in buyer and seller sentiments, reasons behind changes in listed quantities, and characteristics of trading structures, serving as the basis for determining if the market had reached bottom. Subsequently, it integrated these micro-level phenomena with macro-supply-and-demand dynamics. Experts introduced the common framework distinguishing between 'price-driven rents versus rent-driven prices' to explain the unique pricing mechanism in China's real estate market, highlighting the core contradiction stemming from excess supply caused by massive construction over the last ten years, thus explaining why rental yields aren't suitable as valuation anchors for Chinese home prices. Finally, it mapped these industry assessments onto specific corporate counterparts. While acknowledging ongoing challenges within the broader market, the report didn't adopt a blanket bullish stance. Instead, it sought out companies with structural advantages—those capable of enhancing ROE via business model transformation (e.g., shifting from development to operations management) and accelerating capital cycles, like China Resources Land and China Resources Properties & Lifestyle. For valuation purposes, tailored methods were applied based on each company’s business model: P/E multiples for China Resources Land and China Resources Properties & Lifestyle, reflecting how profit margins best capture value given their respective revenue streams. A PBV approach was used for Sunac Holdings, appropriate for heavy asset developers where focus lies more on asset worth (such as land reserves and investment properties) than short-term profits, providing a clearer picture of liquidation or revaluation value. This illustrates the principle that matching valuation approaches closely with underlying business models enhances analytical accuracy.
Methodology notes
Supply and Demand Determine Pricing Mechanism
The report notes that China's mass housing construction over the past decade has created ample supply, shifting the real estate market pricing logic from 'rent-driven price' to 'price-driven rent.' As such, rental levels generally adjust passively along with property prices, making simple rental yield calculations inadequate for assessing fair property valuation—a crucial insight into understanding contemporary Chinese real estate pricing mechanisms.
Matching Valuation Methods to Business Models
For China Resources Land and China Resources Properties & Lifestyle, the report employs PE (Price-to-Earnings Ratio) valuation because their income generation patterns (development/sales or operational/service fees) align well with earnings figures reflected in their income statements. It underscores that for stable-profit or growing companies, PE remains a standard tool for valuation.
Asset Revaluation and Book Value
Sunac Holdings is valued using P/BV (Price-to-Book-Value ratio), typical for asset-intensive developers focusing on assets like land reserves and investment properties rather than immediate profitability. Thus, PB valuation better reflects their potential liquidation or revalued status, emphasizing that asset-heavy businesses may benefit more from this method compared to others.
Business Model Transformation and Capital Circulation Acceleration
The report advocates for China Resources Land and Sunac Holdings based on 'business model transformation and accelerated capital circulation,' arguing this boosts ROE (Return on Equity). It implies improved free cash flow and return rates achieved by speeding up asset turnover and transitioning toward lighter asset models, helping readers grasp the strategic shift among developers from 'high-leverage fast-turnover' to 'quality operation-oriented' enterprises and recognizing associated value creation.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- China Resources Land (1109.HK)Benefit Logic: Enhanced ROE through Business Model Transformation and Accelerated Capital Cycling
- Strengths
- Business Model Transition; Expedited Capital Recycling
- Weaknesses
- -
- Comparison
- -
- Risks
- Slower-than-expected downturn in lower-tier city real estate markets; Intensifying competition in mergers and acquisitions inflating land costs and compressing margins; Delays in converting urban renewal projects
- China Resources Properties & Lifestyle (1209.HK)Benefit Logic: Competitive Edge Enhancement via Expansion in Third-Party Managed Projects
- Strengths
- Growth in Number of Third-Party Managed Projects; Strengthening Competitive Position
- Weaknesses
- -
- Comparison
- The report explicitly states that its advantage relative to peers in managing third-party projects continues to grow
- Risks
- Deterioration in macro conditions undermining retail performance and developers' willingness to expand shopping centers; Suboptimal mall positioning leading to reduced occupancy rates and compromised profitability in mall management
- Sunac Holdings (1030.HK)Benefit Logic: Benefits from Business Model Transformation and Accelerated Capital Cycling
- Strengths
- -
- Weaknesses
- -
- Comparison
- -
- Risks
- Slower-than-anticipated slowdown in lower-tier city real estate markets; Exacerbated competition or oversupply in lower-tier city shopping centers; Weak retail market conditions; Loss of acquisition advantages post-chairman departure; Financial strain from early bond redemption or loan recalls
Key data
- China Resources Land Rating and Target PriceBuy / HK$36.00Current share price is HK$35.50 (as of May 7, 2026)
- China Resources Properties & Lifestyle Rating and Target PriceBuy / HK$55.00Current share price is HK$49.48 (as of May 7, 2026)
- Sunac Holdings Rating and Target PriceBuy / HK$3.30Current share price is HK$2.30 (as of May 7, 2026)
- Proportion of Sellers Upgrading Properties~50%Approximately half of sellers choose to buy another property post-sale for upgrades
- China Resources Properties & Lifestyle Valuation Method2027E PEBased on expected P/E multiple for 2027
Impact & implications
The analysis suggests that although policy relaxations have boosted transaction volumes, China's real estate market remains in the phase of 'volume increases preceding price stabilization,' lacking widespread emotional recovery. Significant structural splits persist: prime demand and luxury segments are active while mid-range areas face pressure, and discrepancies exist between homeowner and buyer mindsets. For developers, operating in an environment of ample supply and discerning buyers where merely pursuing higher prices isn't viable, clearing inventory, expediting capital recycling, and pivoting toward operational management become critical pathways to elevate ROE. Hence, the rationale behind recommending China Resources Land, China Resources Properties & Lifestyle, and Sunac Holdings centers on these companies possessing strengths in transitioning business models and expanding third-party management capabilities amid ongoing sector-wide adjustments.
Risks
- Government-imposed administrative constraints limiting demand and mortgage disbursements
- Tighter financing environments for Chinese developers
- Macroeconomic pressures and income strains (particularly those arising from events like pandemics)
- Underperforming economic growth in China relative to expectations
- Slowed real estate market in lower-tier cities
- Intensified competition in M&A raising land costs and squeezing margins
- Delays in urban renewal project conversions (pertaining to China Resources Land)
- Weak retail market impacting developer expansion plans for malls (pertaining to China Resources Properties & Lifestyle)
- Poorly positioned malls leading to declining occupancy rates (pertaining to China Resources Properties & Lifestyle)
- Oversupply issues in lower-tier city shopping centers (pertaining to Sunac Holdings)
- Loss of bidding advantages following the chairman's resignation (pertaining to Sunac Holdings)
- Financial distress due to premature bond redemptions or loan recalls (pertaining to Sunac Holdings)
What to watch
- Trends in transaction volumes and prices of second-hand homes in first-tier cities (Shanghai, Shenzhen)
- Future developments in buyer and seller mindsets and listing behaviors
- Progress in inventory clearance and pricing strategies among developers
- Expansion progress of China Resources Properties & Lifestyle's third-party managed projects
- Advancements in urban renewal projects and capital cycling for each company