China real estate housing price trends continued to diverge in May, with tier-1 cities relatively stable

Overview

This report tracks China's high-frequency real estate market data for May, with the core conclusion that price, sales, and listing trends continued to diverge across cities. Morgan Stanley believes that the recovery in sales in top-tier cities is taking longer than expected, while secondary home listing prices in most sample cities are still declining, and lower listing prices may continue to pressure transaction prices in the coming months.

Core views

The report expects K-shaped sales performance to persist: some tier-1 cities may see modest housing price increases due to better destocking progress and policy support; however, against a backdrop of limited willingness of households to leverage up, cautious income expectations, and the gradual fading of policy effects and pent-up demand, the nationwide month-on-month housing price trend remains weak. Secondary homes are expected to continue gaining market share thanks to price competitiveness and the supply of lower total-ticket products.

Analysis framework

The report mainly uses cross-validation based on high-frequency indicators from sample cities, including secondary home listing prices in 85 cities, total and new listing volumes in about 50 cities, and broker store visits in 45 cities, while also incorporating month-on-month, year-on-year, and changes versus year-end figures, as well as policy easing and transaction structure changes to assess sales and price trends. At the stock level, it values CR Land and C&D using 2026e NAV, DCF, WACC, capitalization rates, and developer scorecard discounts.

Methodology notes

• Industry cycle trackingHigh-frequency real estate monitoring in sample cities

  Month-on-month and year-on-year tracking of listing prices, listing volumes, and broker store visits

  By tracking secondary home listing prices, total listing volumes, new listing volumes, and broker store visits across multiple sample cities, the report assesses market demand, supply pressure, and the direction of price transmission.

• Cycle assessmentK-shaped sales divergence framework

  Diverging sales and housing price trends between top-tier cities and other cities

  The report believes some tier-1 cities are supported by policy easing and improved destocking, but more cities still face pressure from falling prices and weaker transactions, so the industry's overall recovery is uneven.

• Valuation method2026e NAV and developer scorecard discount

  Asset-value-based valuation with a discount based on developer quality

  CR Land uses 2026e NAV of HK$60.88/share with a 30% discount; C&D uses 2026e NAV of HK$32.59/share with a 35% discount. Scoring dimensions include land bank, execution, scale, growth, profitability, financing, and leverage.

Asset mapping & comparison

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

• China real estate sector

  Covered sector

  Strengths

  Sales and prices in tier-1 cities are relatively stable, while secondary homes continue to gain share due to price competitiveness and the supply of lower total-ticket products.

  Weaknesses

  Listing prices are still falling in most sample cities, households have limited willingness to leverage up, income expectations are cautious, and available new-home inventory is declining.

  Comparison

  Tier-1 cities are performing better than most lower-tier cities; secondary homes have greater advantages than new homes in terms of price and supply structure.

  Risks

  After policy effects and pent-up demand fade, sales in June and the third quarter may continue to slow or even turn negative year-on-year.

• CR Land (1109.HK)

  Top pick

  Strengths

  The report believes it has a solid EPS outlook, attractive dividend yield, and medium-term re-rating potential; its developer scorecard scores relatively highly on financing and leverage.

  Weaknesses

  Valuation still requires a 30% NAV discount to reflect industry risks, and sales and the pace of shopping mall openings will affect performance.

  Comparison

  Ranked above C&D in the report's recommendation order and maintained as the top pick.

  Risks

  Contracted sales may be weaker than expected, or new shopping mall openings may be slower than expected.

• C&D (1908.HK)

  Second pick

  Strengths

  The report believes it has a solid EPS outlook, attractive dividend yield, and medium-term re-rating potential; 2026e NAV includes relatively high development property value and net cash.

  Weaknesses

  Gross margin and the pace of land acquisition are critical to valuation and earnings delivery, and valuation applies a 35% NAV discount.

  Comparison

  Ranks behind CR Land, but is still listed as a selected name benefiting from both industry beta and self-help alpha.

  Risks

  Gross margin may be weaker than expected, or land acquisition may proceed more slowly than expected.

Key data

• Secondary home listing prices in 85 cities-0.5% MoM, -11.3% YoYThe May decline widened slightly from -0.4% MoM in April; 5M26 was -2.2% YoY.
• Share of cities with declining listing prices93%In 64% of sample cities, the decline accelerated; the corresponding figures in April were 91% and 19%.
• Listing prices in tier-1 cities-0.1% MoMOverall relatively stable, which the report attributes to stronger secondary home sales and policy easing in some cities.
• Total secondary home listings in about 50 cities+0.1% MoMAbout 60% of cities recorded a month-on-month increase; versus the end of 2025, total listings rose in 51% of cities, and 31% hit record highs.
• New secondary home listings-4% MoM, -10% YoYStill declining, but the share of cities with a month-on-month decline fell from 96% in April to 67%.
• Broker store visits in 45 cities-2% MoM, +12% YoYVisits cooled in May after strong secondary home sales in March-April.
• Industry stock price performanceabout -10% since mid-May, HSI about -1%The report believes that even after the pullback, the industry's risk-reward profile still skews to the downside, and it remains necessary to observe whether a true inflection point is forming.
• CR Land 2026e NAVHK$60.88/share, 30% discountIncludes development properties at HK$15.62, investment properties at HK$55.22, and net debt at HK$9.96; capitalization rates for investment properties are 5-8%.
• C&D 2026e NAVHK$32.59/share, 35% discountIncludes development properties at HK$25.65, other businesses at HK$1.14, and net cash at HK$5.79.

Impact & implications

The investment implication is that the industry has not yet seen a clear broad-based inflection point, and in the near term one should avoid extrapolating localized improvements in tier-1 cities into a nationwide recovery. In allocation, the report prefers selective developers that possess both industry beta and self-help alpha, focusing on EPS visibility, dividend yield, and medium-term re-rating potential.

Risks

• Declining secondary home listing prices may continue to pressure transaction prices in the coming months.
• Limited household willingness to leverage up and cautious income expectations may weaken the sustainability of sales.
• After the effects of policy easing and earlier pent-up demand fade, secondary home sales volume may continue to slow in June and turn to negative year-on-year growth in the third quarter.
• A reduction in developers' saleable resources may cause new-home sales to continue declining year-on-year.
• Although industry share prices have already pulled back, the report still believes the risk-reward profile skews to the downside, and one cannot judge an inflection point based on the correction alone.
• At the individual stock level, CR Land faces risks related to contracted sales and the progress of shopping mall openings; C&D faces risks related to gross margin and the pace of land acquisition.

What to watch

• Whether sales volumes stabilize in June-August.
• The transmission pressure between secondary home listing prices and transaction prices.
• Secondary home listing volumes, new listing volumes, and the share of cities hitting record highs.
• Changes in transaction structure, especially the share of secondary homes relative to new homes.
• Rental trends and their impact on expected home-purchase returns.
• The sustained effects of policy easing in Shenzhen, Guangzhou, and other cities.
• CR Land's contracted sales and shopping mall opening progress.
• C&D's gross margin and pace of land acquisition.