China Property Slump to Last Longer Than Expected, UBS Says

(Bloomberg) — UBS Group AG, which had been among the few firms predicting a recovery in China’s property sector, now expects a delay following a renewed sales slowdown in the second quarter.

John Lam, head of China and Hong Kong property research at the Swiss bank, said in March that home prices in top-tier cities would “turn stable” by early 2026. He now anticipates that to happen in mid-to-late 2026, unless Beijing introduces additional stimulus measures.

“The sales momentum has become tepid in recent months,” Lam said in an interview. “If that continues, a recovery will occur later than expected.”

Lam is known for downgrading China Evergrande Group at the start of 2021, 11 months before the nation’s most indebted developer defaulted during the housing meltdown. He also took a bold stance last year by turning bullish on the sector, even as most of his peers were forecasting a further decline.

Weakening demand has prolonged the time it takes to sell homes, according to Lam. In March, inventory turnover in tier-one cities had fallen to an average of 14 months, the same level as 2015 at the onset of an upcycle, he said. But that rose to 20.7 months at the end of June, meaning it will take longer to absorb housing stock even in the largest cities, which are widely expected to rebound first.

Global banks are divided on the outlook for China real estate, which has been a drag on the economy for more than four years. Morgan Stanley forecasts property sales to remain weak in the third quarter. HSBC Holdings Plc analysts are seeing a “highly divergent” recovery, which benefits quality state developers with strong pricing power in top-tier cities and robust project pipelines there.

Renewed Slump

Lam mainly based his March prediction on an easing of residential oversupply after many cash-strapped developers stopped buying land. Last year, housing starts by builders tumbled 63% from the onset of the downturn in 2021, more than the 48% drop in home sales by area.

The basis of his call remains unchanged. China’s total housing inventory has continued to fall since the end of March, according to Lam. It’s just taking longer to shrink it down.

New-home sales by the 100 largest developers have fallen more than 20% for two consecutive months, China Real Estate Information Corp. data show. The worsening decline signals the effects of a stimulus campaign since last September are wearing off. Prices of new homes fell 0.27% in June from May, the most in eight months.

Calls for further policy support for the residential market have grown louder as the slump drags on. Still, the Communist Party’s decision-making Politburo refrained from adding property stimulus measures at a meeting last week after the Chinese economy held up surprisingly well in the face of US tariffs.

Lam sees one bright area for the market: real estate investment trusts. He is recommending stock investors look for the potential upside when developers spin off their shopping malls to Chinese REITs, which have seen demand soar this year in the hunt for yield.

China launched its REIT market in 2021 as a way to channel capital into large infrastructure projects in exchange for a relatively consistent flow of dividend income. It expanded the program to include shopping malls in 2023. Investors have been snapping up these funds this year, seeking higher returns as sovereign bond yields hover near record lows.

Among Asia’s major markets, China REITs delivered the second-highest returns in the first half of 2025, Bloomberg Intelligence analysts Kristy Hung and Monica Si wrote in a note in July. Valuations for the sector have also remained resilient compared with a drop of as much as 84% for developers’ bonds and stocks during the same period, the BI researchers said.

Stock Catalyst

A REIT listing of a developer’s malls will likely provide a stock catalyst for the builder itself, Lam said. Higher valuation of malls listed on a REIT usually implies that other malls owned by the developer have been undervalued, he said.

Major Chinese developer stocks listed in Hong Kong are trading at just 0.25 times the book value of their assets on average, according to data compiled by Bloomberg. For about 70 REITs listed in mainland China, the average ratio is 1.4.

“China’s real estate financing may undergo a major structural change in the next three to five years,” Lam said. “Expansion of the REIT sector is set to make up for shrinking market value of homebuilder stocks.”

(Updates with latest policy background in the 10th paragraph.)

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