Broker: UOB Kay Hian
Date of Report: 16 July 2025

China Property Sector Faces Further Weakness as Urban Policy Emphasizes Pragmatism Over Large-Scale Redevelopment

Executive Summary

The Chinese property market continues to experience a downturn, with property sales and prices weakening further into June and July 2025. A recent Central Urban Work Conference (CUWC) set a pragmatic tone for urban development, steering clear of ambitious, large-scale urban redevelopment plans. With investors watching for cues from the upcoming Politburo meeting, UOB Kay Hian maintains a MARKET WEIGHT stance on the sector, with China Resources Land (CR Land) as its top pick.

Peer Comparison: Key Metrics and Valuations

Sector Update: Property Sales and Prices Continue to Slide

– Property sales and prices weakened further in June and July 2025, with negative momentum across all city tiers. – The CUWC set a pragmatic, steady approach to urbanisation, avoiding large-scale redevelopment. – The updated policy framework aims to reduce uncertainty and improve implementation, but further details are awaited from the upcoming Politburo meeting.

Central Urban Work Conference: Pragmatic Urbanisation, No Big Redevelopment

• The conference emphasized that China’s urbanisation is entering a phase of steady, rather than rapid, development.
• Urban renewal, especially infrastructure and maintenance of existing housing, will be a focus. The pace of urban village and shanty house redevelopment will be cautious, unlike the aggressive targets set in 2015.
• Seven key tasks were outlined for cities: increasing capacity for population and economic growth, and building cities that are capable, innovative, livable, green, resilient, culturally advanced, and smart.
• The challenge of “urban diseases,” mentioned in 2015, was notably absent this year.
• Population will likely continue to concentrate in core metropolitan areas.

Policy Implications and Uncertainties

The high-level meeting confirms leadership commitment to urban development and should lower policy uncertainty. However, investors should watch for:

• Further changes to household registration (hukou) policies in major cities
• Direction of central fiscal funding for urban renewal
• The pace of using housing maintenance funds

Sector Picks: CR Land Remains Top Pick

– UOB Kay Hian maintains a MARKET WEIGHT rating on China’s property sector. – CR Land (1109 HK) is recommended as the top pick, with a BUY rating and 11.5% upside to its HK\$32.42 target. – Longfor Properties is also favored for its higher potential upside should supportive policies materialize.

Historical Context: Past Urban Work Conferences

Industry Data: Weak Fundamentals and Notable Downturns

• Property investment fell 12.4% year-over-year (yoy) in June, unchanged from May.
• New home sales dropped 11.5% yoy in June, compared to a 7.1% yoy drop in May.
• Gross floor area (GFA) sold fell 6.5% yoy in June, versus a 4.6% yoy decrease in May.
• Improvements were seen in new housing starts (-9.5% yoy vs -18.7% in May) and completions (-2.2% yoy vs -19.1% in May).
• Tier 1 and Tier 2 cities saw the sharpest sales declines, indicating broad-based weakness.

Key Property Industry Data (YoY Growth %)

Primary Residential Sales: Regional and Tier Breakdown

• GFA sold in Tier 1 cities dropped 32.8% from 2021 to 2024, and 42.7% for the first half of 2025 versus the same period in 2021.
• Tier 2 and Tier 3/4/5 cities saw even steeper declines: -54.1% and -62.8% from 2021 to 2024, respectively.
• Sales value also saw similar drops, with Tier 3/4/5 cities down 65.8% from 2021 to 2024.

Price Trends: Downward Pressure Continues in New and Secondary Markets

– New home prices in June 2025 declined month-on-month (mom) by 0.3% in Tier 1, 0.2% in Tier 2, and 0.3% in Tier 3 cities. – Secondary home prices also fell mom by 0.7% (Tier 1), 0.6% (Tier 2), and 0.6% (Tier 3). – The waning effect of policy support introduced in September 2024 is evident, as both new and secondary home prices have now recorded negative mom growth for consecutive months.

Transaction Volumes: July Data Signals Further Weakness

• In the first 13 days of July 2025, new home sales (by GFA) in 28 monitored cities declined 12.7% mom and 16.1% yoy.
• Tier 1 cities saw average daily sales drop 16.0% mom and 36.1% yoy.
• Tier 2 and Tier 3 cities also experienced double-digit declines, while lower-tier cities showed some resilience with a 42.2% mom and 60.7% yoy increase.
• Second-hand home transactions also weakened, with a 13.7% mom and 9.2% yoy drop in Tier 1 cities and a 19% mom, 9.5% yoy drop in nine Tier 2 cities.
• Listing prices for secondary homes declined mom in all 91 sample cities in the second week of July.

Sample New-Home Sales (GFA, 000 sqm) in July 2025

Second-Hand Home Transactions (Units) in 12 Cities, July 2025

Company Analysis

China Resources Land (1109 HK)

– BUY rating, with a target price of HK\$32.42 versus a current share price of HK\$29.05, offering 11.5% upside. – 2026F/2027F PE: 7.5x/7.1x; P/B: 0.6x/0.5x; Yield: 4.9%/5.2%. – CR Land is considered the top pick for its relative stability and policy alignment.

China Overseas Land (688 HK)

– BUY rating, target price HK\$16.67, current price HK\$13.62 (22.4% upside). – 2026F/2027F PE: 8.2x/7.4x; P/B: 0.3x/0.3x; Yield: 4.6%/5.0%. – Strong upside potential with attractive yield.

Longfor Properties (960 HK)

– BUY rating, target price HK\$11.58, with current price at HK\$10.18 (13.8% upside). – 2026F/2027F PE: 10.8x/9.5x; P/B: 0.4x/0.4x; Yield: 2.9%/3.3%. – Higher potential upside if new supportive policies are announced.

Sunac China Holdings (1918 HK)

– SELL rating, with a target price of HK\$1.06 versus current HK\$1.67, indicating a -36.5% downside. – PE is not meaningful due to company-specific issues; no dividend yield expected. – Weak fundamentals and high risk profile.

Outlook and Actionable Takeaways

– The property sector remains under pressure, with sales and prices in a multi-month decline. – The CUWC’s pragmatic approach reduces policy volatility, but investors await further clarity from the upcoming Politburo meeting. – UOB Kay Hian maintains MARKET WEIGHT. CR Land is favored for its resilience, while Longfor presents higher upside if stimulus measures are enacted.

Conclusion

The Chinese property sector continues to face significant headwinds, with falling sales and prices, cautious policy stances, and uncertain near-term catalysts. While leading companies like CR Land and Longfor offer relative safety and potential upside, the broader market remains challenging. Close attention should be paid to upcoming policy directions, particularly from the Politburo, which may set the tone for the sector’s recovery or continued stagnation in the months ahead.