China's top 100 developers saw contracted sales rise 15% month-on-month in May, the strongest sequential gain in a year, as policy easing in Shenzhen and other tier-1 cities drove a genuine demand recovery.
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China property sales improve 15% in May as tier-1 cities lead recovery
China's top 100 developers saw contracted sales rise 15% month-on-month in May, the strongest sequential gain in a year, as policy easing in Shenzhen and other tier-1 cities drove a genuine demand recovery.
Daiwa said China's property market is bottoming in tier-1 cities after May sales data showed the sharpest monthly improvement in a year, with leading state-owned developers posting double-digit growth.
"May sales data supports our forecast of bottoming out and recovery in tier-1 cities," Daiwa said in a research report, reiterating its preference for state-owned developers with concentrated tier-1 exposure.
Contracted sales value among the top 100 developers fell just 2% year-on-year in May, narrowing from a 12% decline in April. On a month-on-month basis, sales value jumped 15% and sales area rose 9%, compared with 3% gains in both metrics during the same period last year, indicating the improvement was not purely seasonal. The average selling price climbed 9% year-on-year to 22,842 yuan per square meter, reflecting a richer mix of tier-1 and high-end projects.
The recovery in China's property sector, which has contracted for four consecutive years, hinges on whether the tier-1 rebound can sustain and spread. Daiwa expects the pace of decline to further moderate in the second quarter, though cumulative sales for the first five months still fell 17% year-on-year.
Divergence Widens Between State-Owned and Private Developers
The gap between winners and losers in China's property market is widening. Leading state-owned developers recorded double-digit year-on-year sales growth in May, with China Resources Land Ltd. (01109.HK) surging 28%, China Overseas Land & Investment Ltd. (00688.HK) rising 14% and Merchants Shekou Industrial Zone Holdings Co. (001979.SZ) gaining 20%. Data from CREIS showed sales of these state-owned enterprises in tier-1 cities jumped 9% to 134% year-on-year, with Shenzhen — which relaxed home purchase restrictions at the end of April — posting an even stronger increase of as much as 1,523%.
In contrast, private developers continued to underperform. Longfor Group Holdings Ltd. and Seazen Group Ltd. saw May sales plunge 48%, constrained by limited new project launches and insufficient presence in tier-1 markets. Even Binjiang Group Co. and Greentown China Holdings Ltd., which are concentrated in the relatively strong Hangzhou market, recorded sales declines.
Valuation Debate Intensifies After Sector Rally
The sector's recent rally has reignited debate about whether current valuations are justified. Since the end of March, share prices of mainland developers under Goldman Sachs' coverage have risen an average of 6%, while better-performing state-owned developers have gained 17%. China Overseas and China Resources Land have each surged about 30%.
Goldman Sachs, in a separate report, applied a four-pillar recovery framework evaluating demographics, income, affordability and supply conditions across tier-1 and tier-2 cities. Under its optimistic scenario — which assumes home prices in 15 leading cities achieve a 15% increase by the end of 2028 — China Overseas, with more than 80% of its saleable resources in those cities, would see cash earnings rise more than 30% by 2028 compared with 2026 estimates. China Resources Land could see cash earnings increase more than 50% over the same period, benefiting from both property development recovery and improved mall performance driven by the wealth effect of rising home prices.
The last time China's property sector showed a comparable sequential improvement was in mid-2023, when a brief policy-driven rally fizzled within three months as demand in lower-tier cities failed to follow. The current recovery, concentrated in tier-1 markets, faces a similar test: whether the Shenzhen-led momentum can pull along the 15-city cluster that Goldman Sachs identifies as the leading indicator for a broader turnaround.
Daiwa maintained Buy ratings on both China Resources Land and China Overseas as its sector top picks, while remaining cautious on private developers facing rating downgrade risks as sales momentum fades.
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] 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%[3] 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[4] 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% - AASTOCKS.com
