China Property Sales Decline Slows, Morgan Stanley Cautious

Key Highlights of April Property Sales

Contracted sales for 25 major Chinese property developers tracked by Morgan Stanley experienced a 9% year-over-year decline in April. This marks a significant narrowing of the year-to-date sales decline, which now stands at 31% year-over-year, according to CRIC data. Despite the improvement, analysts at Morgan Stanley remain prudent about the durability of this recovery.

Broader Market Performance

The positive trend was visible across the market. The top 50 and top 100 developers saw their attributable sales decline by 6% and 10% year-over-year respectively in April. This performance is a notable improvement from the 20% and 19% drops recorded in March. However, the year-to-date sales declines for these groups remain substantial at 19% and 21%.

Divergence in Developer Performance

State-Owned Enterprises Lead the Way

State-owned enterprises (SOEs) continued to significantly outperform the market. Companies like CR Land and CMSK posted impressive year-over-year gains of 50% and 47%. Other SOEs including Jinmao, COLI, and C&D also reported strong growth. Morgan Stanley attributes this success to their stronger brand reputation and greater access to new saleable resources in top-tier cities.

Private and Semi-SOE Developers Lag

In stark contrast, several private developers recorded sales declines exceeding 40% year-over-year, including CIFI, Midea RE, and Longfor. Semi-SOE developers such as Vanke and Gemdale also faced headwinds, with sales falling by 58% and 43% respectively, highlighting a clear performance gap in the sector.

Analyst Outlook and Forward Guidance

Looking ahead, Morgan Stanley advises investors to closely monitor primary and secondary sales volumes, home prices, and rental rates from May through July. The firm maintains a selective investment approach, favoring SOEs like CR Land and C&D. They note that should the strong sales trend continue, developers with large exposure to Tier 1 cities, like COLI and Jinmao, may also outperform.

FAQ

Q: What was the overall trend for China's property sales in April?
A: The rate of decline slowed significantly. Major developers saw a 9% year-over-year drop, which is an improvement compared to previous months, though the market is still down year-to-date.

Q: Are all property developers in China recovering at the same pace?
A: No, there is a clear divergence. State-owned enterprises (SOEs) are outperforming with strong sales growth, while many private and semi-SOE developers continue to experience sharp declines.

Q: What is Morgan Stanley's outlook on the Chinese property market?
A: The firm remains cautious about the long-term durability of the sales recovery. They recommend monitoring key market indicators over the next few months to confirm a sustained trend.

Source: Investing.com