Highlights

• High-frequency data in Jul 26 showed demand remained concentrated in Tier 1 cities. New-home sales in 19 major cities rose 6% yoy, while Tier 1 cities continued to outperform Tier 2 in both new-home and second-hand transactions. On a ytd basis (as of 2 Aug), Tier 2 cities still recorded declines, suggesting the recovery remains narrow.
   
• Inventory continued to decline in Tier 1 cities, but housing prices remained under pressure. Inventory months fell across all four Tier 1 cities, supported by lower saleable GFA and stronger sales in Shanghai, while second-hand home prices continued to trend downward.
   
• Maintain UNDERWEIGHT. Our top picks are COLI and CR Mixc.
   

Analysis

• High-frequency data for the full month of Jul 26 showed that new-home sales in 19 major cities increased 6% yoy, mainly driven by Tier 1 cities. Second-hand home transactions in Tier 1 cities continued to post strong sales growth, though Tier 2 cities were much weaker. Meanwhile, overall housing prices continued to trend downwards.
  
  a)    New-home sales in 19 major cities increased 6% yoy in Jul 26. In Jul 26, average daily new-home sales in Tier 1/2 cities rose 15%/4% yoy, respectively. Among Tier 1 cities, Beijing/Shanghai/Guangzhou/Shenzhen recorded yoy sales increases of 6%/17%/2%/78%, respectively. On a ytd basis (as of 2 Aug), average daily new-home sales in 19 major cities fell 5% yoy, with Tier 1/2 cities changing by +2%/-9% yoy, respectively. Among Tier 1 cities, Beijing/Shanghai/Guangzhou/Shenzhen recorded yoy sales changes of -2%/+5%/+1%/+4%, respectively. Overall, the Jul 26 improvement was narrow while Tier 2 cities' 9% ytd decline suggests the underlying trend is still deteriorating.
  
  b)    Second-hand transactions in Tier 1 cities continued to post resilient sales growth, but Tier 2 cities lagged. In Jul 26, average daily sales of second-hand homes in three Tier 1 cities and nine Tier 2 cities rose 14% and 2% yoy respectively. Beijing/Shanghai/Shenzhen saw their average daily second-hand home sales rise 12%/19%/4% yoy respectively. On a ytd basis (as of 2 Aug), three Tier 1 cities rose 10% yoy while nine Tier 2 cities fell 5% yoy. Beijing/Shanghai/Shenzhen saw their average daily second-hand home sales jump 6%/14%/3% yoy respectively. Overall, the second-hand market remains resilient in Tier 1, but the strength has yet to broaden beyond Tier 1.
  
  
  
  c) Overall price trends remained on a downward trajectory. According to the ICE Index updated on 2 August, average listing prices of second-hand homes in 100 major cities fell 0.1% wow and 0.5% mom. Among the four Tier 1 cities, the listing price index of Beijing/Shanghai/Guangzhou/Shenzhen fell 0.1%/0.0%/0.0%/0.2% wow, changed by -0.5%/+0.0%/-0.5%/-0.7% mom, and by -2.7%/+1.7%/-2.4%/-1.5% ytd respectively. 
   

• All four Tier 1 cities have seen their inventory months decline from the Feb-Mar 26 peak, mainly due to the ongoing reduction in saleable GFA. As of 2 Aug 26, saleable GFA in Beijing/Shanghai/Guangzhou/Shenzhen changed by -20.4%/+0.3%/-10.5%/-28.1% yoy, respectively. In Shanghai, where saleable GFA was little changed, stronger new-home sales were the main driver of the decline in inventory months.
   
• Maintain UNDERWEIGHT on China's property sector, as: a) the 1H26 previews confirm that the development-margin trough is not yet behind us; b) ongoing earnings contraction leaves sector valuations unattractive, with one-year forward dividend yields already near or below -1SD from the 2020 mean; and c) according to CRIC, in 7M26, total sales for top 20 mainland developers fell 10.4% yoy. However, we see selective opportunities in developers with strong Tier 1 city exposure.
   
• Our top pick for the property segment is COLI, an SOE developer with a strong pipeline and a 13% yoy growth in its 7M26 sales. It is trading at a low valuation of 0.32x 2026F P/B (1SD below mean) and 10.4X 2026F PE (0.9SD above mean). 
   
• Our top pick for the property management segment is CR Mixc, for its strong recurring cash flow and margin resilience supported by high-end commercial properties. It is trading at 16.8x 2026F PE (0.8SD below mean) with a 5.9% dividend yield (0.9SD above mean).