Several global investment banks are increasingly signaling optimism towards China's real estate sector, with a widespread positive outlook on the recovery prospects of major cities' housing markets, indicating a notable improvement in market sentiment.
A recent report from Goldman Sachs has garnered significant attention. The report suggests that property markets in Shanghai and Shenzhen could bottom out by the end of this year or in the second half of 2026, forecasting a cumulative price increase of approximately 15% between late 2025 and late 2028.
Titled "Positioning Ahead of Tier-1 Cities Turnaround," the report's core argument is that Hong Kong's real estate market has already begun to recover, and Shanghai and Shenzhen share key fundamental similarities with Hong Kong, potentially following a comparable recovery trajectory.
Market performance data cited by Goldman Sachs shows that since April 2025, shares of Hong Kong developers have risen by an average of about 65%, while mainland Chinese developers' shares have declined by roughly 17% over the same period. Historically, mainland developers have typically enjoyed higher valuations and profitability—with an average price-to-book ratio of around 1.9 times, compared to 0.8 times for Hong Kong developers, and a significantly higher return on equity (14% versus 5%). This disparity has been attributed to mainland firms' greater focus on development, faster asset turnover, and higher leverage levels.
However, during the current property downturn, despite a narrowing ROE premium, mainland developers have experienced more pronounced valuation compression. Even high-quality state-owned enterprises, viewed as industry consolidators, now trade at an average price-to-book ratio of just 0.5 times, corresponding to an ROE of about 5% for 2026-2027. Hong Kong developers also trade at around 0.5 times book value but with an ROE of only about 3%.
These figures suggest that market pessimism may have been excessive, potentially underestimating future prospects and indicating a potential reversal opportunity.
From a fundamental perspective, Goldman Sachs identifies four key drivers for real estate recovery—demographics, income levels, housing affordability, and supply conditions—where Shanghai and Shenzhen show the most strength. Although rental yields in these cities remain below mortgage rates, preventing positive holding returns, the gap has narrowed to its lowest level in nearly a decade. Furthermore, similar to Hong Kong, wealth effects from a rebounding stock market could gradually translate into increased housing demand.
Based on these factors, Goldman Sachs concludes that Shanghai and Shenzhen are poised to lead the current real estate recovery, stabilizing about 6 to 24 months ahead of other tier-1 and tier-2 cities. Additionally, between 2024 and 2025, these two cities absorbed about 60% of high-quality resource allocations, accounting for roughly 30% of prime state-owned developers' land reserves, further solidifying their leading position.
Echoing this view, J.P. Morgan recently expressed a similar outlook. Rajiv Batra, a strategist based in Singapore, noted that the recovery in Hong Kong's property market is gradually spilling over to major Chinese cities, while delayed wealth effects from the stock market rally are also boosting housing demand.
Batra stated, "After five years of adjustment in China's property market, we may now be approaching an inflection point, with initial signs of recovery emerging as early as March." Batra, who also serves as Head of Asia and Co-Head of Global Emerging Market Equity Strategy at J.P. Morgan, holds a relatively positive view on Chinese equities compared to other emerging markets, suggesting that a rebound in the property sector could be a key driver for outperformance.
Earlier, UBS Securities also released positive signals. In March, the firm's chief China economist, Tombeak, indicated that since late 2025, cities like Beijing and Shanghai have successively rolled out measures to ease purchase restrictions and offer subsidies. Although the intensity varies, the policy direction has clearly shifted. As market expectations gradually improve, there remains room for further relaxation in top-tier cities, and the drag of real estate on the macroeconomy is expected to diminish significantly.
Overall, amid a gradually easing policy environment, recovering capital markets, and strengthening fundamentals in core cities, international institutions are shifting from caution to structural optimism regarding China's real estate sector. Whether major cities can stabilize first will not only serve as a barometer for the industry's recovery but also significantly influence the subsequent pace of China's economic rebound.