Housing: Green shoots in Tier-1, still searching for "LUV" elsewhere

Research evidence excerpt

Housing: Green shoots in Tier-1, still searching for "LUV" elsewhere

Tier-1 housing green shoots: more than a policy bounce

China’s housing market has attracted renewed attention in recent months, as hopes

have risen that the sector may finally be approaching a bottom after years of downturn.

The clearest improvement is in Tier-1 cities, where both new home and secondary home

sales have been improving on a yoy basis in recent months (Exhibit 1 and Exhibit 2).

Shenzhen has led the recovery in new-home sales, with sales volume (measured by floor

area sold) up 42% from a year earlier in June, while Shanghai has been the strongest

performer in the secondary market, with sales volume up 20% yoy in June.

Prices have also improved sequentially. On a mom basis, Tier-1 cities have seen four

consecutive months of increases in secondary-home prices, with Shanghai and Beijing

showing the strongest momentum, averaging 1.1% mom and 0.8% mom, respectively,

over this period (Exhibit 3).

That said, a longer-term comparison suggests the recent sales rebound is not especially

impressive relative to the one seen at the end of 2024. Price momentum appears

somewhat stronger this time, but only modestly so. Back then, an unexpected monetary

easing package announced in late September, including a 50bp mortgage-rate cut,

triggered a policy-driven rebound, which eventually proved short-lived

So why is the market more optimistic now? The key difference is that the latest

improvement looks less like another pure policy bounce. There are two structural shifts

in Tier-1 cities recently, which were much less evident in 2024: declining secondary-

home listings, and rental yields that have become increasingly attractive relative to other

household savings alternatives.