China's real estate recovery path remains structurally differentiated

Overview

This report is a summary of Goldman Sachs' China Property Expert Call Series. Goldman Sachs invited Nie Cong, founder of Trend Animals, to discuss China's real estate market cycle and trading trends. Based on high-frequency, city-level secondary-home data from more than 80 cities and its proprietary indices, the expert believes the nationwide decline in housing prices is marginally easing, but the market recovery is uneven, with specific subsegments in core cities and high-rental-yield assets stabilizing first.

Core views

The core view is that China's real estate recovery will not simply manifest as a synchronized nationwide rebound, but is more likely to progress through divergence in asset quality, rental yield, city inventory, and policy intensity. The expert's base case is long-term structural divergence: a new generation of high-quality housing and low-priced assets with high rental yields recover in price and transaction volume first, then gradually spill over to mid-market housing through replacement demand. An alternative scenario is that large-scale policy stimulus drives a broad recovery similar to Hong Kong's, especially with rapid expansion in risk appetite and price rebounds in mid-priced housing in key cities.

Analysis framework

The report uses a combination of expert interviews, high-frequency secondary-home indices, city and subsegment comparisons, inventory months, and scenario analysis. The expert focuses on comparing prices, rental yields, transaction volumes, and inventory pressure in Shanghai, Shenzhen, Beijing, Guangzhou, and several non-core high-yield cities, and evaluates future opportunities from both consumption upgrading in housing and investment return perspectives.

Methodology notes

• Expert interviewGoldman Sachs China Property Expert Call Series

  Observe market turning points through industry experts and proprietary data platforms

  The report is based on an expert call held by Goldman Sachs on June 2, 2026, inviting Nie Cong, founder of Trend Animals, to share his views on China's property cycle, city divergence, and trend-trading opportunities.

• High-frequency data analysisTrend Animals proprietary housing indices

  High-frequency secondary-home indices across more than 80 cities

  Trend Animals uses city-level secondary-home data and denoising algorithms to identify price turning points, and the expert says its indices typically lead public sentiment and official statistics by 1 to 3 months.

• Scenario analysisStructural recovery and policy stimulus scenarios

  The base case is long-term structural divergence, while the alternative scenario is a broad recovery under strong stimulus

  The expert divides the recovery path into two categories: without large-scale stimulus, high-quality housing and high-yield low-priced assets recover first; if mortgage rates are cut by 50 to 100 basis points and government inventory buybacks accelerate, a broader and faster price rebound may occur.

• Investment frameworkRental yield and asset quality screening

  Use rental yield, quality upgrades, and oversold magnitude to screen for potential opportunities

  The expert believes that high-quality new homes, oversold mid-market assets in key cities, and properties currently yielding more than 3.5% in rental income have better value re-rating potential in a broader recovery or rate-cut environment.

Asset mapping & comparison

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

• Chinese real estate developer stocks

  industry research and valuation-comparison related asset

  Strengths

  If prices stabilize in core cities, policy stimulus strengthens, or mid-market assets rebound, developer valuations and risk appetite may benefit.

  Weaknesses

  The report does not provide specific stock ratings or target prices, and fundamentals remain weak in most cities.

  Comparison

  Compared with a single city or project, developer stocks are more jointly affected by policy expectations, sales recovery, and balance-sheet risk.

  Risks

  Slow inventory destocking, weaker-than-expected sales recovery, insufficient policy support, and financing pressure may constrain valuation recovery.

• Shanghai small-sized and micro secondary homes

  structurally leading recovery asset

  Strengths

  Demand is supported by government buybacks of existing homes and use as affordable rental housing; units under 50 square meters and units of 50 to 70 square meters have already rebounded from their lows.

  Weaknesses

  Units of 50 to 90 square meters may face more difficult destocking due to higher inventory formed under the historical 70/90 rule.

  Comparison

  Performance is better than in most subsegments in Beijing and Guangzhou, and also better than in non-core cities facing heavier inventory pressure.

  Risks

  A slowdown in government buybacks, insufficient transmission through the replacement chain, or renewed inventory pressure.

• Shenzhen upgrade housing

  core-city asset supported by upgrade demand

  Strengths

  Mid- to high-end homes priced at RMB 10 million to 20 million have bottomed and risen modestly, with clearer momentum in core submarkets such as Nanshan and Futian.

  Weaknesses

  The recovery is mainly concentrated in upgrade housing and core areas, and may not represent a comprehensive citywide uptrend.

  Comparison

  Compared with small-sized homes in Shanghai, Shenzhen's performance is driven more by recovery in upgrade demand than by government buybacks.

  Risks

  Changes in household income expectations, credit conditions, and affordability for high total prices may affect sustainability.

• Low-priced properties with high rental yields

  potential value re-rating asset supported by yield

  Strengths

  Assets such as older small-sized units in Urumqi, Dali, and parts of Chengdu are supported by rental yields, and some areas have already seen price stabilization or gains.

  Weaknesses

  City tier and liquidity are weaker than in core Tier 1 and Tier 2 cities, and investor exit opportunities and transaction depth may be limited.

  Comparison

  Compared with assets that rely purely on capital gains, high-yield assets have stronger valuation support when interest rates decline.

  Risks

  Falling rents, changes in non-local investment demand, and fluctuations in tourism and retirement demand may weaken the yield advantage.

• Oversold mid-market assets in key cities

  high-beta assets under strong stimulus or a broad recovery scenario

  Strengths

  Mid-market assets in key cities such as Suzhou, Nanjing, Hangzhou, and Wuhan could show significant price elasticity if they experience a Hong Kong-like rebound in mid-market housing.

  Weaknesses

  Under the base case, recovery in high-quality assets and high-yield assets needs to occur first before transmission, making the timing uncertain.

  Comparison

  Compared with high-quality new homes and high-yield low-priced properties, these assets depend more on market risk appetite and policy stimulus.

  Risks

  Without large-scale stimulus or if inventory remains too high, oversold assets may continue to languish.

Key data

• Recent decline in nationwide secondary-home price indexabout -0.4% momThe expert said the monthly decline in the national price index narrowed after pressure at the start of the year, recently improving to about -0.4%.
• Price gains in Shanghai small-sized homesmicro units about 4%, small units about 11%Units under 50 square meters in Shanghai have risen about 4% since bottoming in November 2025, while units of 50 to 70 square meters have risen about 11% since bottoming in January 2026.
• Performance of Shanghai mixed-use apartmentsprices have risen for 4 consecutive monthsSome mixed-use apartments are priced at only 20% to 25% of nearby residential homes and offer relatively attractive rental yields.
• Shenzhen upgrade housingstabilized and rebounded in the RMB 10 million to 20 million rangeThe expert said overall housing prices in Shenzhen have stabilized over the past 3 months, with mid- to high-end upgrade demand supporting core areas such as Nanshan and Futian.
• Inventory months in leading Tier 1 and Tier 2 cities9 to 32 monthsAs of April 2026, inventory months in leading T1 and T2 cities stood at 9 to 32 months.
• Inventory months in other Tier 2 cities14 to 479 monthsInventory months in the remaining Tier 2 cities are significantly higher, and pressure may be even greater in Tier 3 and lower-tier cities.
• Time for Shanghai housing prices to stabilizeabout 6 months in the optimistic scenario, about 6 to 12 months in the pessimistic scenarioThe expert believes Shanghai prices still need time to stabilize, echoing earlier discussions that Shanghai and Shenzhen may bottom out by the end of 2026.
• Premium for superior property servicesabout 15% to 20%Projects with better amenities such as property management, clubhouses, pedestrian-vehicle separation, and elevator installations command a unit-price premium versus comparable nearby projects.
• Re-rating potential of high-rental-yield assetsabout 20% to 30%The expert believes that if mortgage rates decline by another 50 to 100 basis points, properties currently yielding more than 3.5% in rent could see 20% to 30% value appreciation.

Impact & implications

For investors, the report suggests that pricing in China's real estate assets is shifting from a pure location logic toward a balance of quality, services, lifestyle, and rental yield. Sector opportunities may not lie in a broad beta rebound, but in niche directions such as small-sized homes in Shanghai, upgrade housing in Shenzhen, high-quality projects in tourism and retirement cities, oversold mid-market assets in key cities, and low-priced properties with high rental yields. At the property-equity level, if the market expects strong stimulus or stabilization in core cities, developer valuations may receive phased support; however, against a backdrop of high inventory and demand divergence, the durability of the recovery still needs to be validated.

Risks

• The nationwide recovery remains highly structural, and the localized improvement in Shanghai, Shenzhen, or high-yield assets should not be extrapolated into a broad reversal.
• Inventory months vary greatly across cities, and inventory pressure in some Tier 2 and lower-tier cities may continue to weigh on prices.
• Without strong stimulus such as a 50 to 100 basis point cut in mortgage rates and accelerated government inventory buybacks, a broad recovery may be difficult to achieve.
• Most subsegments in Beijing and Guangzhou remain under pressure, while price corrections in high-end assets in core areas of Hangzhou and Chengdu have accelerated since March 2026.
• For units of 50 to 90 square meters in Shanghai, historical supply structure may make destocking more difficult than for smaller or larger units.
• The value re-rating of high-rental-yield assets depends on lower interest rates, stable rents, and transaction liquidity, and there is a risk of yield compression.

What to watch

• Whether housing prices in Shanghai can stabilize over the next 6 to 12 months, and whether transaction strength in small-sized homes can continue transmitting to upgrade housing above 100 square meters.
• Whether prices and transaction volumes for upgrade housing in core Shenzhen districts such as Nanshan and Futian continue to recover.
• Whether the monthly decline in the nationwide secondary-home price index continues to narrow, and whether the rental index across 80 cities maintains the stabilization trend seen since January 2026.
• Whether mortgage rates are cut by 50 to 100 basis points, and whether local governments accelerate existing-home buybacks and inventory-digestion policies.
• Whether the gap in inventory months between leading Tier 1/Tier 2 cities and other Tier 2/lower-tier cities narrows.
• Transaction activity and price elasticity in high-rental-yield properties, tourism and retirement housing, and oversold mid-market assets in key cities.