An analysis report from Guosen Securities suggests the property market is expected to stabilize at a low level in the second half of the year, leading into 2026.
New home sales are projected to reach 7.7 trillion yuan, representing an 8.3% decline, with sales area at 830 million square meters, down by 5.4%. The rate of decline is expected to narrow slightly.
New construction starts are anticipated to achieve positive growth. However, completions are forecast to be 470 million square meters, a decrease of 20%, due to insufficient inventory of pre-sold homes, with no basis for short-term improvement.
Investment, benefiting from the improvement in construction starts, is projected at 7.5 trillion yuan, down 9%. The focus is on the potential for valuation recovery driven by marginally improving data trends.
Review of the First Half
The property sector continued its bottoming-out and recovery process in the first half of 2026, with market operations showing positive changes compared to previous years. On the transaction side, the "small spring" season was robust, with second-hand home transactions remaining high and traditional off-season performance exceeding expectations. Regarding prices, the decline in second-hand home prices has been narrowing continuously, with prices in some core cities stabilizing first, indicating a gradual shift in the second derivative of housing prices. Structurally, the recovery in demand for improved housing has driven the repair of the replacement chain, with high-quality assets in high-tier cities performing better. In the rental market, after a long adjustment cycle, rental indices in some core cities have shown signs of stabilizing and rebounding, providing marginal support for improved market expectations. The industry is currently in a transitional phase from "expectation repair" to "fundamental verification." Although indicators such as investment and new construction starts remain under pressure, improvements on the demand side, price stabilization, and marginal recovery in rents collectively suggest the most pessimistic phase for the sector may be over. The focus for the second half of the year will be on the sustainability of transactions, the spread of price stabilization, and whether rental recovery can form a positive cycle.
Outlook for the Second Half
Core data is expected to bottom out and recover. While total inventory continues to decline, there remains an excess inventory of approximately 700 million square meters, with land inventory accounting for over 60%, presenting a "source congestion" type of inventory structure. It is projected that new home market activity will stabilize at a low level in 2026, with sales of 7.7 trillion yuan and sales area of 830 million square meters, with the rate of decline narrowing slightly. New construction starts are expected to see positive growth. Completions, due to insufficient pre-sold home inventory, lack a foundation for short-term improvement and are forecast at 470 million square meters. Investment, benefiting from improved construction starts, is projected at 7.5 trillion yuan.
Investment Recommendations
The focus is on the potential for valuation recovery driven by marginally improving data trends. Assuming high-frequency data does not indicate a secondary downturn, the subsequent performance of property stocks is anticipated to unfold in three stages. The first stage is "not as bad as feared": current stock discounts already fully, or even overly pessimistically, price in future housing price declines, and continuous data improvements have not been reflected in stock prices; if data continues to improve, a small shift from short to long positions could provide significant uplift. The second stage is "bottom confirmation": a consensus forms that housing prices have stopped falling, with some cities seeing price increases, clearly reducing impairment pressure. The third stage is "upward price movement": while pricing will still primarily be based on PB, some developers will gradually be referenced against PE. The recommendation is to continue increasing allocation to the property sector, maintaining an "outperform the market" rating. Preference is for targets with sufficient discounts, active land acquisition, and relatively cleared risks. Recommended stocks include CHINA JINMAO (00817), YUEXIU PROPERTY (00123), GREENTOWN CHINA (03900), CHINA RES LAND (01109), CH OVS G OCEANS (00081), China Merchants Shekou (001979.SZ), and KE Holdings (02423, BEKE.US).
Risks include policy implementation effects and subsequent rollout strength falling short of expectations; external environmental changes leading to a more-than-expected downturn in property fundamentals; and unexpected shocks from developer credit risk events.
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