Broker: UOB Kay Hian
Date of Report: July 22, 2025
China Property Sector Update: New Construction Rules Shake Up Sales, Earnings Outlooks for Key Developers
Overview: Market Shifts in Guangzhou and Shenzhen as Policy Adjustments Take Hold
A recent sector update reveals that recent changes to construction standards in Guangzhou and Shenzhen have delivered a short-term boost to new project sales and efficiency ratios, but have simultaneously intensified pressure on older inventory. This development has prompted a policy reversal in Guangzhou, tightening rules again as of May 2025. The report offers in-depth channel checks, earnings previews, and a comprehensive peer comparison for China’s major property developers, with actionable insights for the investment community.
Policy Changes: New Construction Standards and Floor Area Ratio (FAR) Regulations
- Local housing bureaus in Guangzhou and Shenzhen relaxed construction standards in 2023 and 2024, increasing efficiency ratios for new projects.
- Key relaxed rules include higher allowances for floor height, larger balconies, and expanded bay windows.
- New homes benefit from improved design and utilization, with some projects reporting efficiency ratios as high as 100-140% compared to older projects’ 75%.
- However, increased new supply and efficiency put pressure on second-hand and existing new home inventory, leading to a tightening of standards in Guangzhou in May 2025.
Summary of Recent FAR Policy Changes by City
| City |
Key FAR Regulation Adjustments |
| Wuhan (WH) |
Enclosed balconies count as 1/2 of projected area toward FAR; sky gardens allowed for units over 100 sqm. |
| Fuzhou (FZ) |
Enclosed balcony area rule relaxed; max balcony projection extended from 1.8m to 2.4m. |
| Guangzhou (GZ) |
Enclosed balcony area limit raised from 15% to 20% of internal floor area; bay window max dimensions raised; exclusions for walkways, pavilions, and public spaces from plot ratio calculations. |
| Hangzhou (HZ) |
Compliant covered walkways excluded from plot ratio and density calculations; 50% of balcony area toward plot ratio. |
| Shenzhen (SZ) |
Balcony projection max extended to 2.4m; bay window depth up from 0.6m to 0.8m. |
| Beijing (BJ) |
Elevated floors as public activity spaces excluded from plot ratio based on planning scheme. |
| Chengdu (CD) |
Bay windows, balconies, and non-public spaces allowed up to 20% of unit’s gross floor area. |
Guangzhou and Shenzhen: Channel Check Insights
- New projects launched under the relaxed standards achieved high efficiency ratios, with the “One Shenzhen” project reaching almost 100% efficiency and over 90% sell-through for its 2,000 units.
- Some Guangzhou projects using new standards achieved up to 140% efficiency ratio.
- Policy relaxation boosted new project and land sales revenues for local governments but led to increased competition and price pressure for older inventory and second-hand homes.
- Guangzhou responded by tightening new construction standards as of May 2025 to balance the market.
Key Project Spotlight: One Shenzhen
- Developers: CSCEC & HBCT CDC
- Site area: 43,314 sqm | GFA: 309,900 sqm | Plot ratio: 7.1
- Unit sizes: 81/91/129 sqm | ASP: RMB 57,000–62,000/sqm
- Land cost: RMB 23,914/sqm | Land premium rate: 0.19%
- Discount to registration price: 8-15% | Efficiency ratio: ~100%
- Sales launch: Oct 2024 | Delivery: Jun 2027
- Smallest unit (81 sqm) nearly sold out; projected rental yield around 2%
- Strong location (1.2 km to metro, 3 km to train station) and amenities contributed to successful sales.
Market Performance: Weakening Sales and Price Trends in July 2025
- First 20 days of July 2025: New home sales (by GFA) in 28 monitored cities dropped 18.5% month-on-month (mom), 14.9% year-on-year (yoy).
- Tier 1 cities: -16.9% mom, -31.1% yoy; Tier 2: -22.9% mom, -21.5% yoy; Tier 3: -30.3% mom, +5.2% yoy.
- Sharpest declines seen in Suzhou, Beijing, Shenzhen, Shanghai, and Chengdu.
- Second-hand home transactions in Tier 1 and 2 cities fell 23.6% and 17.6% mom, 24.5% and 22.4% yoy, respectively.
- Listing prices for secondary homes posted further declines: Beijing (-0.9%), Shanghai (-1.1%), Guangzhou (-1.2%), Shenzhen (-1.4%) in the third week of July.
Sample of New-Home Sales (GFA, 000 sqm) in Tier 1 & 2 Cities (June 2024 – June 2025)
| City |
Jun 24 |
May 25 |
Jun 25 |
Jun 25 YoY (%) |
Jun 25 MoM (%) |
| Beijing |
309 |
303 |
201 |
-35 |
-34 |
| Shanghai |
632 |
511 |
434 |
-31 |
-15 |
| Guangzhou |
405 |
342 |
329 |
-19 |
-4 |
| Shenzhen |
213 |
136 |
110 |
-49 |
-20 |
| Wuhan |
575 |
656 |
414 |
-28 |
-37 |
Peer Comparison: Major Chinese Developers – Valuation and Outlook
| Company |
Ticker |
Rec |
Price (HK\$) |
Target Price (HK\$) |
Upside (%) |
Market Cap (HK\$ m) |
PE 2026F |
PE 2027F |
P/B 2026F |
P/B 2027F |
Yield 2026F (%) |
Yield 2027F (%) |
| China Resources Land |
1109 HK |
BUY |
28.85 |
32.40 |
12.4 |
205,728 |
7.5 |
7.0 |
0.6 |
0.5 |
5.0 |
5.3 |
| Sunac China Holdings |
1918 HK |
SELL |
1.63 |
1.06 |
-35.0 |
18,696 |
nm |
nm |
0.5 |
0.0 |
0.0 |
0.0 |
| China Overseas Land |
688 HK |
BUY |
13.82 |
16.67 |
20.6 |
151,258 |
8.3 |
7.6 |
0.3 |
0.3 |
4.5 |
5.0 |
| Longfor Properties |
960 HK |
BUY |
10.10 |
11.58 |
14.7 |
70,571 |
10.7 |
9.4 |
0.4 |
0.4 |
2.9 |
3.3 |
Company Focus: CR Land (1109 HK) – Top Sector Pick
- Recommendation: BUY
- Share Price: HK\$28.85 | Target Price: HK\$32.40 | Upside: 12.4%
- 2026F PE: 7.5x | Yield: 5.0%
- Stands out as the top pick in the sector for its resilience and healthy balance sheet.
Company Focus: Longfor Properties (960 HK) – Margin Pressure but Resilient IP Portfolio
- Recommendation: BUY
- Share Price: HK\$10.10 | Target Price: HK\$11.58 | Upside: 14.7%
- Contracts sales, GFA sold, and ASP all declined sharply in 1H25 (-31.5%, -28.5%, -4% yoy respectively), much worse than the 11.8% average decline for top 100 developers.
- Significant drop in new land acquisitions is another contributor to sales weakness.
- Recurring income (after tax) grew 1.3% yoy to RMB 13.27b in 6M25, with rental income from investment properties up 6.1% to RMB 7.01b and services income down 3.5% to RMB 6.26b.
- Service segment decline partly due to reclassification of some service businesses as rental income; slower property management and VAS growth expected amid macro headwinds.
1H25 Results Preview for Longfor
- Development properties (DP) revenue expected to rise over 30% yoy, driven by a strong delivery pipeline.
- Total revenue forecast to grow over 25% yoy, but property development GPM to fall to around 0% (from 7.4% in 1H24 and 6.1% in 2H24).
- Recurring business GPM expected to remain stable; blended GPM projected to drop to 12.2% (from 20.6% in 1H24 and 16% in 2024).
- Core net profit expected to plunge 60-70% yoy due to lower GPM and reduced bond repurchase gains.
- Balance sheet remains resilient with a stable net gearing ratio.
Revised Earnings Forecast for Longfor
|
2025 |
2026 |
2027 |
| Core Net Profit – Old (RMB m) |
4,103 |
6,351 |
7,521 |
| Core Net Profit – New (RMB m) |
3,161 |
3,484 |
5,855 |
| Change (%) |
-23.0 |
-45.1 |
-22.2 |
- Revenue assumptions revised for DP (2025: +20%, 2026: -10%, 2027: 0%), IP, and Service segments with corresponding GPM adjustments.
- SOTP target price lowered by 3.4% to HK\$11.18 per share.
- Despite expected net losses in DP from 2025 to 2027, positive cash flow and deleveraging are expected as most land costs are already paid, and capex is declining.
Company Focus: China Overseas Land (688 HK)
- Recommendation: BUY
- Share Price: HK\$13.82 | Target Price: HK\$16.67 | Upside: 20.6%
- 2026F PE: 8.3x | Yield: 4.5%
- Positioned as a value pick with robust fundamentals among leading SOEs.
Company Focus: Sunac China Holdings (1918 HK)
- Recommendation: SELL
- Share Price: HK\$1.63 | Target Price: HK\$1.06 | Downside: -35%
- No dividend yield; valuation remains unattractive due to ongoing challenges and negative growth outlook.
Sector Outlook and Investment Action
The introduction of new construction standards in select cities provided a temporary lift to new-home sales and land revenues, but these policy effects are fading. With July sales and prices weakening across all city tiers, the market’s next focus is the upcoming July Politburo meeting, which may bring further policy guidance or adjustments.
UOB Kay Hian maintains a MARKET WEIGHT rating on the China property sector. CR Land remains the top sector pick for its resilience, while Longfor’s recurring income and deleveraging provide medium- to long-term value despite near-term margin and earnings challenges.
