China housing indicators deteriorated further in July, signaling risk of faster price declines: Morgan Stanley
China’s secondary-market home prices continued to decline broadly across the sampled cities, with declines widening in first-tier cities.
China’s secondary-market home prices continued to decline broadly across the sampled cities, with declines widening in first-tier cities. Listings increased, while home-viewing activity cooled seasonally and household sentiment remained weak. Together, these leading indicators suggest that home prices could fall faster in the coming months.
The deterioration in leading indicators indicates that a recovery in the physical housing market remains a long way off, while transaction prices are likely to face greater pressure in the second half of the year. The key signals are continued price declines across the sampled cities, wider declines in first-tier cities and rising listings.
The note’s logic is that weakening expectations for household income and expectations of further home-price declines are creating a negative feedback loop. Policy measures have not yet been transmitted to the demand side. The market has already priced in the risk of a prolonged property downturn, but the possibility of an acceleration in price declines may not be fully reflected.
For potential trading implications, the note advises avoiding broad-market risk and focusing on higher-quality developers with what it describes as self-rescue alpha, including China Resources Land, Xincheng Development and C&D International, to optimize the risk-reward profile. This is the source’s view, not an independent recommendation.
The note identifies China Resources Land (1109.HK), Xincheng Development (1030.HK) and C&D International (1908.HK) as potentially benefiting. It views highly leveraged private developers and the property sector overall as vulnerable. The risk of an accelerated housing downturn may not yet be fully priced in.
Potential catalysts identified by the note are: 1) the August home-price index; 2) further signals of property-policy easing; and 3) the debt-maturity schedules of major developers.
Conclusion: China’s housing leading indicators have deteriorated broadly, home prices could fall faster, and a recovery in the physical market remains a long way off, according to the note.
The deterioration in leading indicators indicates that a recovery in the physical housing market remains a long way off, while transaction prices are likely to face greater pressure in the second half of the year. The key signals are continued price declines across the sampled cities, wider declines in first-tier cities and rising listings.
The note’s logic is that weakening expectations for household income and expectations of further home-price declines are creating a negative feedback loop. Policy measures have not yet been transmitted to the demand side. The market has already priced in the risk of a prolonged property downturn, but the possibility of an acceleration in price declines may not be fully reflected.
For potential trading implications, the note advises avoiding broad-market risk and focusing on higher-quality developers with what it describes as self-rescue alpha, including China Resources Land, Xincheng Development and C&D International, to optimize the risk-reward profile. This is the source’s view, not an independent recommendation.
The note identifies China Resources Land (1109.HK), Xincheng Development (1030.HK) and C&D International (1908.HK) as potentially benefiting. It views highly leveraged private developers and the property sector overall as vulnerable. The risk of an accelerated housing downturn may not yet be fully priced in.
Potential catalysts identified by the note are: 1) the August home-price index; 2) further signals of property-policy easing; and 3) the debt-maturity schedules of major developers.
Conclusion: China’s housing leading indicators have deteriorated broadly, home prices could fall faster, and a recovery in the physical market remains a long way off, according to the note.