May property sales improved, but the underlying base remains fragile; cooling in June secondary home sales points to renewed weakness ahead

Overview

This report is Morgan Stanley's monthly data tracker for the China real estate sector, covering sales, home prices, the secondary home market, inventory, land, mortgages, policy, developer sales, and NBS data. The core conclusion is: property sales improved temporarily in May, but price trends remained divergent and weak; secondary home sales slowed sharply in June, and together with high inventory, fragile buyer confidence, and weak household income expectations, sector indicators may come under pressure again in 3Q26.

Core views

The report maintains a cautious view. On one hand, CREIS registered new home sales in 65 cities turned positive in May at 1% YoY, and registered secondary home sales in 33 cities rose 17% YoY, indicating some marginal improvement on the transaction side. On the other hand, Bingshan real-time secondary home sales had already slowed in May and weakened further in June, suggesting that the improvement in registered sales may lag and is not yet firm. On pricing, both new home and secondary home prices are still declining YoY, with secondary listing prices falling more sharply. Inventory improved only slightly, but the 31.5-month turnover period remains elevated. Land transactions continued to shrink, which may curb future new starts and supply-side activity in new homes. On investment strategy, the report advises staying cautious and selecting high-quality developers with both repair optionality and company-specific improvement potential.

Analysis framework

The report uses a cross-validated approach that combines multiple high-frequency and official data sources: CREIS registered sales for new and secondary homes, Bingshan real-time secondary home sales, listing prices and listing volumes to capture leading changes, NBS 70-city price data to validate official price trends, CRIC inventory and land data to assess supply-demand and developers' land appetite, and mortgage, policy, and developer sales data to judge sector momentum.

Methodology notes

• Industry cycle trackingSales-Price-Inventory-Land linkage framework

  Assess the real estate cycle position by observing synchronized changes in transactions, prices, inventory, and the land market.

  If sales improvement does not lead to price stabilization and a meaningful decline in inventory, it is usually difficult to confirm that the sector has entered a sustained recovery; continued contraction in the land market may also affect future new starts and later new home supply.

• Valuation methodologyNAV discount valuation

  Estimate NAV separately for development properties, investment properties, or other businesses, then apply a discount based on the developer scorecard.

  The report discloses CR Land's 2026e NAV at HK$60.88/share and applies a 30% discount; C&D's 2026e NAV is HK$32.59/share with a 35% discount, based on factors including land bank, execution, scale, growth, profitability, financing, and leverage.

• Data metric definitionInventory months of sales

  Calculate inventory months using 12-month moving average sales.

  This metric is used to measure the pressure to digest new home inventory; CRIC's 70-city inventory months of sales in May were 31.5 months, down slightly from 31.8 months in April.

Asset mapping & comparison

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

• CR Land (1109.HK)

  Top pick / first choice

  Strengths

  It has a relatively stable EPS outlook, an attractive dividend yield, and the potential for a medium-term re-rating even if the physical market does not recover materially; it scores highly on financing and leverage in the developer scorecard.

  Weaknesses

  It is still exposed to the sector sales cycle, shopping mall opening progress, and overall real estate demand.

  Comparison

  Compared with most developers, the report believes it combines industry beta and self-help alpha, and ranks ahead of C&D.

  Risks

  Upside risks include stronger-than-expected contracted sales and faster new mall openings; downside risks include weaker-than-expected contracted sales and slower-than-expected new mall openings.

• C&D (1908.HK)

  Preferred name / second to CR Land

  Strengths

  It has a relatively stable earnings outlook, attractive dividends, and medium-term re-rating potential; its 2026e NAV includes development properties, other businesses, and net cash.

  Weaknesses

  Its profitability score is slightly lower than CR Land's, and it is more sensitive to gross margin and land acquisition pace.

  Comparison

  It ranks behind CR Land in the preference order, but it remains a high-quality alpha name that the report recommends following.

  Risks

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

• China real estate sector

  Coverage universe / macro and sector allocation object

  Strengths

  Both new and secondary registered sales improved in May, and some inventory metrics edged lower.

  Weaknesses

  Prices are still falling, inventory remains high, real-time secondary home sales are slowing, land transactions continue to contract, and buyer confidence and income expectations are weak.

  Comparison

  Registered secondary home sales are outperforming new homes, but real-time data show that leading momentum is weakening; inventory improvement is relatively better in Tier 1 cities, while Tier 3 cities face greater inventory pressure.

  Risks

  If the June cooling in secondary home sales persists, 3Q26 sales and price data may weaken again; a depressed land market may weigh on new starts and new home sales from 4Q26 to 1H27.

Key data

• CREIS 65-city registered new home sales in MayYoY +1%April was -3% YoY; year to date, new home sales were -15% YoY.
• CREIS 33-city registered secondary home sales in MayYoY +17%April was +8% YoY; year to date, secondary home sales were +2% YoY.
• Bingshan 25-city real-time secondary home salesYoY +26% in MayApril was +30% YoY, and growth slowed further in June.
• NBS 70-city new home pricesYoY -3.6%, MoM -0.2%New home prices continued to decline in May.
• NBS 70-city secondary home pricesYoY -5.9%, MoM -0.3%The MoM decline in secondary home prices widened versus April.
• Bingshan secondary home listing pricesYoY -11.3%, MoM -0.5%This shows that price pressure in the secondary market remains heavy.
• CRIC 70-city new home inventory months of sales31.5 months31.8 months in April; 22.1 months in Tier 1 cities, 30.2 months in Tier 2 cities, and 42.1 months in Tier 3 cities.
• CREIS 300-city land transaction floor area in MayYoY -36%Land transaction value was down 23% YoY, indicating continued weakness in the land market.
• Average land premium rate8.6%It was 7.7% in April; the land abandonment rate fell from 15% in April to 4% in May.
• Top 100 developers' year-to-date new saleable resourcesYoY -42%New saleable resources added in May were up 3% YoY, but the cumulative figure still declined sharply.

Impact & implications

At the sector level, the May sales improvement is not enough to confirm a sustained recovery, and the June weakening in secondary home sales may show up in 3Q26 registered sales and price data; high inventory and weak income expectations limit buyer confidence, while land market contraction may continue to weigh on new starts and new home sales from 4Q26 to 1H27. From an investment perspective, the report prefers developers with stronger asset quality, financing capacity, dividends, and medium-term re-rating potential rather than simply betting on a sharp physical market recovery.

Risks

• Real-time secondary home sales slowed further in June, which may lead to weaker subsequent registered sales.
• New home and secondary home prices continue to fall, which may weigh on buyer confidence.
• Inventory months of sales remain elevated, especially in Tier 3 cities where inventory pressure is larger.
• Weak household income expectations may limit demand recovery.
• Land transactions continue to decline, which may create a lagged drag on new starts and new home sales from 4Q26 to 1H27.
• The research institution and some covered companies may have investment banking or potential business relationships, so investors should pay attention to conflict disclosure.

What to watch

• Whether June and 3Q26 registered secondary home sales confirm the slowdown in Bingshan real-time sales.
• Whether the MoM declines in NBS 70-city new home and secondary home prices widen or narrow.
• Whether CRIC 70-city inventory months of sales can continue to decline, especially in Tier 3 cities.
• Changes in CREIS 300-city land transaction floor area, transaction value, premium rates, and land abandonment rates.
• Whether Top 100 developers' new saleable resources and land acquisition intensity recover.
• Whether mortgage rates, approval cycles, new mortgage lending, and real estate policy show marginal easing.
• CR Land's and C&D's contracted sales, gross margins, dividends, mall openings, and land acquisition pace.