Morgan Stanley has released a report stating that in May, there was a continued divergence in second-hand housing prices and listing volumes across various Chinese cities.
The firm anticipates this 'K-shaped' sales performance will persist, leading to overall month-on-month softness in housing prices, with potential mild increases in some first-tier cities.
The bank still views the risk-reward profile for the domestic property sector as skewed to the downside and advises investors to closely monitor transaction volumes, prices, secondary market listings, transaction structures, and rental levels from June to August.
The top sector pick remains CHINA RES LAND (HKEX: 01109), followed by C&D INTL GROUP (HKEX: 01908), with the view that both companies possess robust earnings per share prospects, attractive dividend yields, and potential for valuation re-rating in the medium term.
Morgan Stanley noted that the month-on-month decline in second-hand listing prices widened slightly in May and expects price cuts in listings to pressure transaction prices in the coming months.
However, prices in first-tier cities remained flat at -0.1%, which is believed to be due to relatively strong secondary sales, partly driven by policy easing.
The firm further expects the secondary market to continue gaining market share, supported by more competitive pricing and increased supply of lower-priced units, which is currently driving housing sales performance.
It is indicated that, due to limited market appetite for leverage and cautious income prospects, secondary transaction volumes may slow further in June as policy effects and pent-up demand fade, potentially turning to year-on-year negative growth in the third quarter.
Conversely, new home sales may continue their year-on-year decline due to a reduction in developers' salable resources.
The bank forecasts a mild month-on-month downward trend for overall housing prices in China for 2026-27, though some first-tier cities may see slight gains supported by inventory reduction.
Comments