Morgan Stanley: China Property - Softer Declines in March, but Sustainability Still in Doubt
Summaries are public. PDF access requires an active membership; all members have the same access. Sign in
Morgan Stanley reports that China's nationwide residential sales value fell 13% year-over-year in March, while sales volume declined 7.4%, representing a notable improvement compared to the first two months of 2026. Home price declines across 70 major cities moderated month-over-month, with tier-one cities seeing resilient rebounds in both primary and secondary markets. However, construction activity remains deeply sluggish, with completions and starts dropping 19% and 17% respectively. Real estate investment declines widened to negative 11.3%.
Analysts attribute the narrower construction declines partly to a low base and Lunar New Year calendar effects rather than a genuine trend reversal. The sustainability of sales improvements remains highly questionable due to elevated inventory levels, fragile homebuyer sentiment, and diminishing policy impacts. Tier-one secondary market outperformance has been driven largely by older, lower-priced homes with acceptable rental yields. Meanwhile, divergence is widening across cities, with tier-two and lower-tier markets continuing to deteriorate in both listing volumes and prices.
The industry is expected to continue underperforming into the second quarter as recent home price weaknesses dampen sentiment. Morgan Stanley maintains an In-Line sector rating, advocating selective stock picking. Top preferences include quality mall operators with C-REIT potential and residential consolidators. CR Land (1109.HK) carries a target price of HK$56.20, C&D International (1908.HK) targets HK$28.90, and Seazen (601155.SS) has a target of Rmb35.84.