May Housing Market: First-Tier Prices Continue to Rise; Secondhand Sales Recover but Supply Remains Pressured
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May Housing Market: First-Tier Prices Continue to Rise; Secondhand Sales Recover but Supply Remains Pressured
Goldman Sachs tracking shows that in May, average prices of both new and secondhand homes in first-tier cities rose month-on-month for several consecutive months. Secondhand sales improved year-on-year, but nationwide new home sales and construction starts continued to decline, intensifying market divergence.
- In May, the average price of new homes in 70 cities fell by 0.2% month-on-month, unchanged from the previous two months; the average price of secondhand homes fell by 0.3% month-on-month, with the decline widening.
- First-tier cities performed strongly: The average price of new homes rose by 0.2% month-on-month (positive growth for four consecutive months), and the average price of secondhand homes rose by 0.3% month-on-month (positive growth for three consecutive months).
- Nationwide new home sales volume/value in May fell by 13%/9% year-on-year, slightly below or in line with Goldman Sachs' expectations.
- In 15 key cities, secondhand home sales rose by 8% year-on-year, exceeding expectations; however, the number of secondhand listings in 100 cities declined year-on-year for the third consecutive month.
- Rents in first-tier cities rose month-on-month for three consecutive months, outperforming the same period last year.
- Developer land acquisition pace varied, with developers allocating an average of 20% of contract sales revenue to land purchases, and project gross margins around 23%.
Report interpretation
Overview
This report provides Goldman Sachs' monthly tracking of China's real estate market for May. The core conclusion is that the market exhibits 'mixed but structurally improving' characteristics: Although nationwide new home sales and construction activity continue to decline, prices in first-tier cities show significant resilience, rising month-on-month for several consecutive months. In the secondhand housing market, sales improved year-on-year, listing pressure eased somewhat, and rental yields stabilized and rebounded in first-tier cities. The firm expects the decline in housing prices to narrow further in June, but new home sales and construction starts will still fall by double-digit percentages year-on-year.
Core views
Price Side: Price resilience in first-tier cities was the biggest highlight this month. In May, the average price of new homes in 70 cities fell by 0.2% month-on-month, flat with March-April; however, the average price of new homes in first-tier cities rose by 0.2% month-on-month, marking the fourth consecutive month of positive growth. For secondhand homes, the average price in 70 cities fell by 0.3% month-on-month, with the decline widening compared to the previous month; yet, the average price of secondhand homes in first-tier cities rose by 0.3% month-on-month, showing positive growth for three consecutive months. In Shenzhen and Shanghai, transaction prices for most property types improved, and Beijing's high-end projects stood out. Sales Side: Nationwide new home sales remain at the bottom. In May, new home sales volume fell by 13% year-on-year, and sales value fell by 9% year-on-year; cumulative sales volume/value for the first five months fell by 11%/14% year-on-year respectively. By contrast, the secondhand housing market was more active, with sales volume in 15 major cities up 8% year-on-year, better than April's +4% and Goldman Sachs' expectations. This was driven by a year-on-year decrease in listings (listing numbers in 100 cities fell for the third consecutive month) and faster transaction turnover rates. Supply and Demand & Rentals: Construction activity remains weak. In May, new construction area fell by 25% year-on-year, and completed area fell by 20% year-on-year, both below Goldman Sachs' expectations, reflecting developers' cautious attitude toward the future market. The rental market showed differentiation: Average rents in 50 cities continued to decline, but average rents in first-tier cities rose month-on-month for three consecutive months, reversing the negative growth trend from 2024-2025 and driving marginal improvement in residential rental yields. Developer Behavior: Land acquisition strategies are highly focused on profitability and core areas. Among the six tracked developers, an average of 20% of contract sales revenue was used for land acquisition in May, with estimated project gross margins around 23%. Of these, 95% of land investments were in Tier-1 and Tier-2 cities, and 78% were in the top 10 cities. Poly Development and Greentown China accelerated their land acquisition pace in May, while other developers slowed down their investment intensity.
Analysis framework
Goldman Sachs adopted an analytical framework combining high-frequency data tracking with macro statistical analysis. First, it used the National Bureau of Statistics (NBS) 70-city housing price index and nationwide sales and construction data to grasp overall trends; second, it leveraged high-frequency data from third-party agencies such as Centaline and CREIS (e.g., secondhand home transactions in 15 cities, listing numbers in 100 cities, online search popularity) to capture marginal market changes, especially differentiating performance across various city tiers (T1/T2/others). Additionally, the report tracked the share of land acquisition expenditure relative to sales revenue among leading developers and estimated project gross margins to assess confidence on the supply side and future supply structure. This methodology—'looking at overall trends, analyzing structural differentiation, and observing micro-level confidence'—helps identify localized recovery signals amid an overall downward market.
Methodology notes
Judging market equilibrium by comparing transaction volumes of new and secondhand homes (demand) with listing numbers/new construction starts (supply).
The report inferred that easing supply pressure—a key leading indicator for price stabilization—was evidenced by a year-on-year decline in secondhand listings coupled with a year-on-year increase in transaction volumes.
The transmission effect from the sales side to construction starts, completions, and the land market.
The report pointed out that weak sales slowed developers' cash flow recovery, thereby suppressing their willingness to start new projects and acquire land, reflected in a sharp year-on-year decline in new construction starts and a sluggish land market.
Assessing the profitability safety of developers’ land-acquisition projects through project-level gross margin (Project GPM).
The report focused on the estimated gross margin of newly acquired land by developers (around 23%) to determine whether developers can still maintain reasonable profit margins under current selling prices, thus influencing their investment intentions.
Key data
- Average New Home Price in 70 Cities, Month-on-Month-0.2%May data, decline unchanged from March-April
- Average Secondhand Home Price in 70 Cities, Month-on-Month-0.3%May data, decline widened compared to April (-0.2%)
- Average New Home Price in First-Tier Cities, Month-on-Month+0.2%Positive growth for four consecutive months
- Average Secondhand Home Price in First-Tier Cities, Month-on-Month+0.3%Positive growth for three consecutive months
- Nationwide New Home Sales Volume, Year-on-Year-13%May data, cumulative for first five months -11%
- 15-City Secondhand Home Sales Volume, Year-on-Year+8%May data, higher than April's +4%
- New Construction Area, Year-on-Year-25%May data, cumulative for first five months -23%
- Completed Area, Year-on-Year-20%May data, cumulative for first five months -23%
- Share of Land Acquisition Expenditure in Sales Revenue20%May data, cumulative for first five months 21%
- Estimated Gross Margin of New Projects23%Average level of May land-acquisition projects
Impact & implications
The report believes that the market is currently in the process of finding a new equilibrium. The stabilization of first-tier city housing prices and the recovery of secondhand home sales indicate that demand for core assets remains, and easing supply pressure helps halt price declines. For developers, the strategy of focusing on high-margin, high-tier cities is taking effect, but overall investment appetite remains constrained by the speed of sales recovery. On the policy front, if first-tier cities fully relax purchase restrictions or provide larger-scale mortgage interest subsidies, it could further consolidate the current recovery momentum. Investors should pay attention to integrators with high-quality land reserves in core cities and sound financial positions.
Risks
- The signal of price stabilization in core first-tier cities fails to sustain or spread to other cities
- Listing pressure in secondhand homes does not ease effectively
- Policy stimulus falls short of expectations (such as relaxing purchase restrictions or lowering mortgage rates)
- Developer financing environment improves slowly, liquidity risks persist
What to watch
- Whether housing prices in core first-tier cities (Shanghai, Shenzhen) show clear stabilization or turning points, and whether other cities follow suit
- Whether the balance of secondhand listings in high-tier cities continues to decline
- Whether rental yields in high-tier cities improve and rents stabilize
- Policy developments regarding public housing fund reforms, large-scale mortgage interest subsidies, or further reductions in commercial mortgage rates
- Whether core first-tier cities completely lift purchase restrictions
- Stimulus policies aimed at boosting employment/demand to improve income expectations
- The status of funding support for urban renewal and urban village redevelopment
- The impact of commercial real estate REITs pilot programs on developer liquidity
- Progress in government’s accelerated acquisition of inventory from non-state-owned developers
- Other measures to improve developer financing, such as expanding the whitelist of eligible projects