Daiwa released a research report stating that since April, the China property sector's stocks have rebounded by more than 20% from their lows, primarily driven by the narrative that first-tier cities (especially Shanghai) have bottomed out. However, the firm is not convinced that this recovery represents a structural shift, as both developers and buyers currently lack confidence. The firm's top picks are CHINA RES LAND and CHINA OVERSEAS, both rated "Buy."

The report explained that April's property sales exceeded expectations, especially during the traditional low season. Primary and secondary residential sales increased by 2.4% and 5.0% year-on-year, respectively. The recovery was particularly evident in first-tier cities, where primary and secondary sales surged by 20% and 14% year-on-year, respectively, with the strong momentum continuing into the Labor Day holiday. Simultaneously, there were signs of stabilization in secondary market prices. However, the report pointed out that the improvement in the secondary market was mainly driven by older, smaller, and dilapidated apartments with low prices and high rental yields. In contrast, sales of commercial housing priced above RMB 5 million showed no signs of recovery, declining by 25% year-on-year. Additionally, developers quickly seized the opportunity from improved market sentiment. In April, new home pre-sale permits in Shanghai surged by 70.8% year-on-year, but few projects withdrew discounts, indicating a lack of confidence from both developers and buyers—a prerequisite for a structural and sustained recovery.

Daiwa believes that if the sales momentum in first-tier cities continues, sector stock prices could potentially rise further in the short to medium term, but the risk of a pullback is also real. The firm prefers state-owned enterprise developers with genuine exposure to first-tier city business over private enterprises, as the latter face downgrade risks once momentum subsides.