Morgan Stanley: The recent upward trend in the real estate sector is difficult to sustain, and residential sales and property prices are expected to decline in the coming months

Morgan Stanley believes that the recent rise in the domestic property sector is mainly due to improved investor sentiment, a rebound in residential sales in recent weeks, and a rotation of funds into underperforming sectors. However, the bank thinks that investors are overly optimistic about the market recovery; it expects that the effects of policies will wane and that seasonal factors related to the Lunar New Year holiday will lead to a cooling of residential sales in mainland China in the coming months, with a potential acceleration in the decline of property prices. Furthermore, based on the recent improvement in residential sales in first-tier cities, the likelihood of policy stimulus further decreases.

At the same time, the bank anticipates that the annual performance of mainland property companies may be disappointing, with profits expected to decline significantly or even record losses; it expects developers to be cautious in their guidance regarding property sales, development profit margins, and profit recovery. The bank believes that the industry will experience a pullback in the near term, especially for GREENTOWN CHINA (03900.HK), CHINA JINMAO (00817.HK), Longfor Group (00960.HK), and Vanke (02202.HK)(000002.SZ).

In contrast, the bank remains optimistic about CHINA RES LAND (01109.HK) and Xincheng Development (01030.HK) and Xincheng Holdings (601155.SH), as they can benefit from the consumption-boosting measures of the 14th Five-Year Plan and the strong policy support for real estate investment trusts. It is also optimistic about C&D INTL GROUP (01908.HK) due to its optimized land reserves, which can support profit margins and restore positive profit growth.

Morgan Stanley's investment ratings and target prices for domestic property stocks are as follows:

Stock | Investment Rating | Target Price (HKD)

C&D International Group (01908.HK) | Overweight | 20.62

China Overseas Land & Investment (00688.HK) | Market Perform | 8.31

CHINA RES LAND (01109.HK) | Overweight | 39.2

GREENTOWN CHINA (03900.HK) | Underweight | 7.86

CHINA JINMAO (00817.HK) | Market Perform | 1.23

Longfor Group (00960.HK) | Market Perform | 8.2

Xincheng Development (01030.HK) | Overweight | 2.81

Vanke (02202.HK) | Market Perform | 3

Yuexiu Property (00123.HK) | Overweight | 5.13