China's Property Market Struggles as Beijing Holds Back on Stimulus

Investors are growing increasingly skeptical that Chinese property stocks will recover this year, as Beijing’s reluctance to implement sweeping stimulus measures deepens pessimism. A key meeting on Tuesday failed to produce any concrete measures to revive the industry, leading to the biggest weekly drop in a gauge of developers’ shares in four months. According to Morgan Stanley, property sales are expected to remain weak in the third quarter, with better-than-expected economic growth data reducing the likelihood of stimulus in the near term.

A four-year slump in China’s property sector shows few signs of easing, with home prices declining further in June and major developers reporting lackluster earnings for the first half of the year. This has left investors hoping for government support to spark a turnaround, with speculation about an aid package fueling a significant one-day jump in developer shares in early July.

Sun Jianbo, president of asset manager China Vision Capital, stated, “I haven’t touched property stocks since 2014 as all the existing housing demand had already been met. Policies can make the real estate slump much milder, but won’t give it a chance to recover.” The Bloomberg Intelligence gauge of developers’ shares has fallen nearly 9% this year, underperforming the Hang Seng China Enterprises Index’s 23% gain. The real estate index saw its biggest one-day advance since February on July 10, amid speculation of supportive measures at the Central Urban Work Conference.

However, Chinese President Xi Jinping refrained from announcing aggressive stimulus at the event, instead advocating a more measured approach to urban planning and upgrades. Shujin Chen, head of China financial and property research at Jefferies Hong Kong Ltd., noted, “Modest policies release won’t help much. You’ll see some market speculations or rumors that may lead to a temporary stock rally, but later find they’re just mostly noises.”

Given the dampened expectations, many market participants are pivoting away from the sector. Six of 20 brokers who cover China Vanke Co., one of the nation’s largest builders by contracted sales, have stopped updating research reports on the firm. The Shenzhen-based company reported a potential loss of $1.67 billion for the first half of 2025. Meanwhile, Poly Developments and Holdings Group Co. reported a 63% drop in preliminary net income for the first half due to market fluctuations and decreasing profitability. Shanghai-based real estate firm Greenland Holdings Corp. posted a preliminary net loss of 3 billion yuan to 3.5 billion yuan for the period.

Developers are seeking to boost liquidity through asset sales, extended bank loans, and debt restructuring. The regulator has introduced a requirement for state-owned developers to avoid defaulting on publicly issued debt, but the overall sentiment remains bearish. Kenny Wen, head of investment strategy at KGI Asia Ltd., commented, “Fundamentally, it’s not a sector worth holding. Property sector now has a different, much less important role in China’s economy from what it was a decade ago.”

However, there are still pockets of opportunity for the bold. JPMorgan Chase & Co. tags the sector as a tactical buy amid growing hopes for further policy support in the coming months. Its top picks include China Resources Land Ltd., China Resources Mixc Lifestyle Services Ltd., and China Overseas Property Holdings Ltd., with their shares up at least 8% this year in Hong Kong.

Morgan Stanley recommends that investors remain defensive and stick with state-owned enterprises with good visibility. High-dividend-yield plays such as C&D International Investment Group Ltd. and Greentown Management Holdings Co. are among its top picks. C&D’s shares have risen 26% this year, while Greentown has declined 13%.

With little hope for a broad revival, some investors are rotating out of property and into sectors offering better earnings upside and stronger policy tailwinds. Fund manager Yang Junxuan of Shanghai Junniu Private Fund Management Co. stated, “The property market is more influenced by the whole economic backdrop, which is still weak. Compared with property stocks, we’re now more inclined to buy military and AI stocks.”