Chinese property developers not yet out of the woods

Listed real estate companies in China saw share prices surge in May 2026, but this is not the recovery that the market has been waiting for.

The Chinese economy has been besieged by weak domestic consumption since 2020 as a property sector crisis halted the recovery of market sentiment post-pandemic.

Policies meant to limit the debt exposure of real estate developers – which were put in place by the government to prevent a corporate funding crunch in the future – ended up exposing over-leveraged companies, with some driven to bankruptcy. This has sent household spending down and property shares plunging, although valuations appear to have bounced back in recent weeks thanks to a crafty workaround utilised by listed developers. The question now is whether this strategy is sustainable.

Dipping into chips

At least 10 property developers in China have invested their capital towards semiconductor manufacturers beginning this year, a high-growth industry that is benefiting greatly from growing global demand and from a state-sanctioned push for the sector. Graph 1 captures the big leap taken by the Real Estate sub-index of the Shanghai Stock Exchange in early May, which peaked with a one-day gain worth 94.8 points on 11 May.

Take the case of Metro Land Corp., a Beijing-based developer long in the red but saw share prices hit the 10 per cent daily surge limit on multiple trading days of May 2026 after announcing its planned acquisition of a minority stake in a company producing advanced microchips. Suddenly, a listed real property company that netted a RMB 1.2 billion (USD 177 million) loss at end-2025 is now valued four times higher year-on-year.

Offhand, it sounds like a clever move that allows residential developers to salvage their valuations by offering investors an entry point into the chipmaking industry, which also diversifies their exposures. Semiconductors are in high demand globally with the surge in artificial intelligence (AI) systems on top of smart gadgets and appliances, which explains their appeal. However, it is unnatural to see the valuations of property firms lifted through inorganic ventures: they remain residential developers at their core, and the market knows that chipmaking is not part of their main revenue streams. It is, therefore, alarming to see shares in real estate companies surging when their core business continues to bleed. Based on government data featured in Graph 2, home sales have remained in contractionary territory over the past 12 months, with as much as a 21 per cent decline recorded in February 2026 even when residential property prices have been consistently dropping.

Property valuations deflated in step with the collapse of the biggest players in the sector. As a result, some homeowners refused to continue paying their mortgages as their asset – once perceived as a constantly-appreciating investment – has been rapidly depreciating. Potential buyers likewise shied away from making new purchases as they believe that prices will slide even lower. There are also reports that this reluctance has also pushed property management companies down as residents and property owners are refusing to pay association fees and similar dues.

Add the fact that more working-age citizens in China are refusing to have children, which also reduces the demand for new homes: the result is a languishing residential property sector with dashed hopes of a significant rebound in the medium term.

Rebuilding uncertain

Several state-owned property firms have been attempting to get back on their feet despite bleeding balance sheets, mostly bankrolled by national and local governments. For one, China Vanke received liquidity support in 2025 to settle maturing debts, followed by new loans and additional share issuances this year so it can fund further attempts to turn the company around. However, scepticism about the residential developer’s rebound remain high, given that new home sales remain depressed and with more outstanding debts maturing. The government has limited resources to extend another bailout – and even if it did, investors know this is not a sustainable solution to reverse an RMB 88.6 billion (USD 13.1 billion) loss.

Consumer confidence recovery is difficult to map out as well, with the interplay of domestic and international policy shifts swaying sentiment. China has so far exhibited some resilience to the global oil supply shock due to the US-Iran conflict, but it certainly does not help spark a quick return to net optimism.

The renewed excitement over AI is perking up investments in China’s favour, and this is expected to provide some push to the real estate sector by way of greater capital inflows and higher household incomes. Recent stimulus programs targeting domestic consumption should help perk up equities across sectors and revive appetite towards acquiring residential properties, however, the path towards confidence rebuilding has been complicated by global developments.

It will take more time for China to completely shrug off the ill effects of its domestic property crisis, but we believe that Mainland assets are still highly attractive for investments. At Lundgreen’s, we maintain our overweight risk rating towards China, and we see the weakness in this segment as an opportunity. We continue to see Chinese equities as undervalued relative to growth and profit potential, providing a cheap entry point into the market. As such, we recommend using this time to venture into these assets or expand one’s existing portfolio, with China stocks likely to sustain the upward trajectory that it has been on for the last two years.