China's property market is showing the clearest signs of a turnaround in two years, with May sales data from the top 100 developers revealing a narrowing decline and a sharp divergence between state-owned winners and private-sector laggards.
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China home sales narrow to 2% drop as tier-1 cities lead
China's top 100 property developers saw their contracted sales value fall just 2 percent year-on-year in May, the narrowest decline in the current cycle, as a recovery in tier-1 cities drove a sharp divergence between state-owned and private developers.
"The improvement was not only driven by seasonality but also indicated a genuine recovery in underlying demand," Daiwa Capital Markets said in a research report citing preliminary data from CRIC. Contracted sales area declined 10 percent year-on-year, narrowing from 15 percent in April, while sales value improved from a 12 percent drop in the prior month.
On a month-on-month basis, sales area rose 9 percent and sales value jumped 15 percent in May, compared with gains of 3 percent for both metrics in the same period last year. The average selling price climbed 9 percent year-on-year and 6 percent month-on-month to 22,842 yuan per square meter, reflecting a greater contribution from tier-1 cities and high-end projects that improved the sales mix. Cumulative contracted sales value for the first five months of 2026 still fell 17 percent year-on-year, though Daiwa expects the pace of decline to moderate further in the second quarter.
The data supports a bottoming narrative for China's beleaguered property sector, which has been in a multi-year downturn that erased trillions of yuan in household wealth and dragged on economic growth. Goldman Sachs said in a separate report that home prices in tier-1 cities have shown encouraging signs of stabilization, and that the equity market has historically acted as a leading indicator in previous real estate cycles. Since late March, shares of state-owned developers under Goldman's coverage have gained an average of 17 percent, with China Overseas Land & Investment Ltd. and China Resources Land Ltd. each surging about 30 percent.
State-owned developers surge as private peers falter
The divergence between leading and lagging developers widened further in May. State-owned developers with strong tier-1 city exposure posted double-digit year-on-year sales growth: China Resources Land rose 28 percent, China Overseas Land & Investment gained 14 percent, and China Merchants Shekou increased 20 percent. According to data from CREIS, sales of these state-owned enterprises in tier-1 cities jumped 9 percent to 134 percent year-on-year, with Shenzhen posting an even stronger increase of 180 percent to 1,523 percent after the city relaxed home purchase restrictions at the end of April.
In contrast, private developers continued to underperform. Longfor Group and Seazen Group saw May sales plunge 48 percent year-on-year, constrained by limited new project launches and insufficient presence in tier-1 markets. Even Binjiang Group and Greentown China, which are concentrated in Hangzhou, recorded sales declines.
Daiwa reiterated its preference for leading state-owned developers with solid tier-1 city exposure and maintained Buy ratings on China Resources Land and China Overseas Land & Investment as its sector top picks. Under Daiwa's optimistic scenario, by 2028 the two companies' cash earnings are projected to increase by more than 30 percent and 50 percent, respectively, compared with 2026 estimates. The broker remained cautious on private developers facing rating downgrade risks as sales momentum fades.
The sector's share prices have corrected more than 10 percent from their May peak, which Daiwa said creates a more attractive entry point as the May sales data supports its forecast of a bottoming and recovery in tier-1 cities. Goldman Sachs' analysis of 15 leading cities suggests that if home prices reach an inflection point achieving a 15 percent increase by end-2028 under its optimistic scenario, developers with concentrated exposure to those markets would be the primary beneficiaries.
This article is for informational purposes only and does not constitute investment advice.
[1] ＜Research＞ Daiwa: CN Home May Sales Further Improve with Recovery in Tier-1 Cities; Top Picks CHINA RES LAND (01109.HK), CHINA OVERSEAS (00688.HK)[2] China’s property market shows more positive signs with price, sales upticks[3] G Sachs: Tier-1 City Home Prices Encouraging; CHINA OVERSEAS (00688.HK) and CHINA RES LAND (01109.HK) Cash Earnings Expected to Rise 30-50%[4] Property recovery in Hong Kong, mainland China warrants attention[5] Daiwa: CN Home May Sales Further Improve with Recovery in Tier-1 Cities; Top Picks CHINA RES LAND (01109.HK), CHINA OVERSEAS (00688.HK) - AASTOCKS.com
