Morgan Stanley has raised fresh caution about China’s property market after its real-time measure of secondary home transactions across 25 cities showed a pronounced slowdown in early June. The bank flagged a drop to 9.2% year-over-year month-to-date sales as of June 10, down from readings of 30% in April and 26% in May.
The firm noted this deceleration occurred even though the data benefited from a lower comparative base tied to the Dragon Boat holiday. That nuance, Morgan Stanley said, undercuts the idea that the spring rebound signalled a sustained recovery.
Variations across city tiers and policy responses
Weakness was concentrated outside top-tier markets. Several lower-tier 2 cities experienced sharp slowdowns, with Nanchang, Foshan, Nantong, Dongguan, Ningbo and Xi’an registering rapid deceleration in secondary sales. Morgan Stanley also pointed out that some major cities - Tianjin, Changsha and Chengdu - moved into negative year-over-year territory.
Cities that introduced easing measures in late April produced mixed outcomes. Suzhou and Wuhan continued to show strength in secondary sales, while Guangzhou, Shenzhen and Foshan each saw sales growth slow by double-digit percentage points after the policy steps.
Spring rebound viewed cautiously
The bank suggested that the unexpected rebound in March and April may have reflected pent-up demand from the fourth quarter of 2025 after mortgage easing and a reduction in panic-driven seller behaviour, rather than signalling more durable momentum.
Morgan Stanley maintained that, despite an 18% pullback in property sector share prices since mid-May, the balance of industry risk and reward still tilts to the downside. For context, the broader Hang Seng Index has declined 8% over the same period, a smaller fall than the sector’s pullback.
What to watch next
The bank recommended monitoring a suite of indicators over the June-to-August window to assess whether an inflection is forming. Key series to follow include sales volumes, home prices, secondary listing volumes, transaction mixes and rental rates. These metrics will help determine whether the recent slowdown represents a temporary pause or a more persistent softening.
On valuation and recommendations, Morgan Stanley kept China Resources Land (SEHK:1109) as its top pick, followed by C&D (SEHK:1908). The bank cited these names for solid earnings outlooks, attractive dividend yields and potential for medium-term re-rating.
Looking ahead, Morgan Stanley expects a broadly soft month-over-month downtrend in home prices through 2026 and 2027, although select Tier 1 cities could experience a mild uptrend if destocking progresses more rapidly there.
Data limitations
The bank’s commentary is based on its 25-city real-time secondary sales series through June 10 and on observed share price movements since mid-May. Where the firm characterises the March-April rebound as potentially driven by pent-up demand, it presents this as a hypothesis tied to mortgage easing and sentiment changes rather than a definitive causal finding.