Finance
China’s property market edges toward an inflection point
Urban buildings in Huai’an city, Jiangsu province, China, on March 18, 2025.
Cfoto | Future Publishing | Getty Images
BEIJING — UBS analysts on Wednesday became the latest to raise expectations that China’s struggling real estate market is close to stabilizing.
“After four or five years of a downward cycle, we have begun to see some relatively positive signals,” John Lam, head of Asia-Pacific property and Greater China property research at UBS Investment Bank, told reporters Wednesday. That’s according to a CNBC translation of his Mandarin-language remarks.
“Of course these signals aren’t nationwide, and may be local,” Lam said. “But compared to the past, it should be more positive.”
One indicator is improving sales in China’s largest cities.
Existing home sales in five major Chinese cities have climbed by more than 30% from a year ago on a weekly basis as of Wednesday, according to CNBC analysis of data accessed via Wind Information. The category is typically called “secondary home sales” in China, in contrast to the primary market, which has typically consisted of newly built apartment homes.
UBS now predicts China’s home prices can stabilize in early 2026, earlier than the mid-2026 timeframe previously forecast. They expect secondary transactions could reach half of the total by 2026.
UBS looked at four factors — low inventory, a rising premium on land prices, rising secondary sales and increasing rental prices — that had indicated a property market inflection point between 2014 and 2015. As of February 2025, only rental prices had yet to see an improvement, the firm said.
Chinese policymakers in September called for a “halt” in the decline of the property sector, which accounts for the majority of household wealth and just a few years earlier contributed to more than a quarter of the economy. Major developers such as Evergrande have defaulted on their debt, while property sales have nearly halved since 2021 to around 9.7 trillion yuan ($1.34 trillion) last year, according to S&P Global Ratings.
China’s property market began its recent decline in late 2020 after Beijing started cracking down on developers’ high reliance on debt for growth. Despite a flurry of central and local government measures in the last year and a half, the real estate slump has persisted.
But after more forceful stimulus was announced late last year, analysts started to predict a bottom could come as soon as later this year.
Back in January, S&P Global Ratings reiterated its view that China’s real estate market would stabilize toward the second half of 2025. The analysts expected “surging secondary sales” were a leading indicator on primary sales.
Then, in late February, Macquarie’s Chief China Economist Larry Hu pointed to three “positive” signals that could support a bottom in home prices this year. He noted that in addition to the policy push, unsold housing inventory levels have fallen to the lowest since 2011 and a narrowing gap between mortgage rates and rental yields could encourage homebuyers to buy rather than rent.
But he said in an email this week that what China’s housing market still needs is financial support channeled through the central bank.
HSBC’s Head of Asia Real Estate Michelle Kwok in February said there are “10 signs” the Chinese real estate market has bottomed. The list included recovery in new home sales, home prices and foreign investment participation.
In addition to state-owned enterprises, “foreign capital has started to invest in the property market,” the report said, noting “two Singaporean developers/investment funds acquired land sites in Shanghai on 20 February.”
Foreign investors are also looking for alternative ways to enter China’s property market after Beijing announced a push for affordable rental housing.
Invesco in late February announced its real estate investment arm formed a joint venture with Ziroom, a Chinese company known locally for its standardized, modern-style apartment rentals.
The joint venture, called Izara Holdings, plans to initially invest 1.2 billion yuan (about $160 million) in a 1,500-room rental housing development near one of the sites for Beijing’s Winter Olympics, with a targeted opening of 2027.
The units will likely be available for rent around 5,000 yuan a month, Calvin Chou, head of Asia-Pacific, Invesco Real Estate, said in an interview. He said developers’ financial difficulties have created a market gap, and he expects the joint venture to invest in at least one or two more projects in China this year.
Ziroom’s database allows the company to quickly assess regional factors for choosing new developments, Ziroom Asset Management CEO Meng Yue said in a statement, adding the venture plans to eventually expand overseas.
Not out of the woods
However, data still reflects a struggling property market. Real estate investment still fell by nearly 10% in the first two months of the year, according to a raft of official economic figures released Monday.
“The property sector is especially concerning as key data are in the negative territory across the board, with new home starts growth worsening to -29.6% in January-February from -25.5% in Q4 2024,” Nomura’s Chief China Economist Ting Lu said in a report Monday.
“It’s long been our view that without a real stabilization of the property sector there will be no real recovery of the Chinese economy,” he said.
Improved secondary sales also don’t directly benefit developers, whose revenue previously came from primary sales. S&P Global Ratings this month put Vanke on credit watch, and downgraded its rating on Longfor. Both developers were among the largest in the market.
“Generally China’s [recent] policy efforts have been quite extensive,” Sky Kwah, head of investment advisory at Raffles Family Office, said in an interview earlier this month.
“The key at this point in time is execution. The sector recovery relies on consumer confidence,” he said, adding that “you do not reverse confidence overnight. Confidence has to be earned.”
Cybersecurity and enterprise software stocks have been market dogs in 2026, with fears that AI will wipe out a wide range of companies in the enterprise space dominating the narrative. But they snapped a brutal losing streak this past week, joining in the broader market rally that saw all losses from the U.S.-Iran war regained by the Dow Jones Industrial Average and S&P 500.
Cybersecurity has been “a victim of some of the AI-related headlines,” Christian Magoon, Amplify ETFs CEO, said on this week’s “ETF Edge.”
It wasn’t just niche cybersecurity names. Take Microsoft, for example, which was recently down close to 20% for the year. Its shares surged last week by 13%.
A big driver of the pummeling in software stocks was a rotation within tech by investors to AI infrastructure and semiconductors and some other names in large-cap tech, Magoon said, and since cybersecurity stocks and ETFs are heavily weighted towards software companies, they were left behind even as those businesses continue to grow on a fundamental basis.
But Wall Street now has become more bullish with the stocks at lower levels. Brent Thill, Jefferies tech analyst, said last week that the worst may be over for software stocks. “I think that this concept that software is dead, and then Anthropic and OpenAI are going to kill the entire industry, is just over-exaggerated,” he said on CNBC’s “Money Movers” on Wednesday.
“Big Short” investor Michael Burry wrote in a Substack post on Wednesday that he is becoming bullish about software stocks after the recent selloff. “Software stocks remain interesting because of accelerated extreme declines last week arising from a reflexive positive feedback loop between falling software stocks and changes in the market for their bank debt,” he wrote.
The Global X Cybersecurity ETF (BUG), is down about 12% since the beginning of the year, with top holdings including Palo Alto Networks, Fortinet, Akamai Technologies and CrowdStrike. But BUG was up 12% last week. The First Trust NASDAQ Cybersecurity ETF (CIBR) is down 6% for the year, but up 9% in the past week.
Piper Sandler analyst Rob Owens reiterated an “overweight” rating on Palo Alto Networks which helped the stock pop 7% — it is now down roughly 6% on the year. Its peers saw similar moves, including CrowdStrike.
Performance of Global X cybersecurity ETF versus S&P 500 over past one-year period.
Magoon said expectations may have become too high in cybersecurity, and with a crowding effect among investors, solid results were not enough to to push stocks higher. But the down-and-then-back-up 2026 for the sector is also a reminder that when stocks fall sharply in a short period of time, opportunity may knock.
“Once you’re down over 10% in some of these subsectors, you start to see the contrarians start to say, ‘well, maybe I’ll take a look at this,'” Magoon said.
He said AI does add both opportunity and uncertainty to the cybersecurity equation, increasing demand but also introducing new competition. But he added, “I think the dip is good to buy in an AI-driven world,” specifically because the risks to companies may lead to more M&A in cyber names that benefits the stocks.
For now, investors may look for opportunity on the margins rather than rush back into beaten-up tech names. “I think investors are still going to remain underweight software,” Thill said.
But Magoon advises investors to at least take the reminder to keep an eye on niches in the market during pronounced downturns. “The best-performing are often the least bought and do the best over the next 12 months versus late-in-the-game piling on,” he said.
While that may have been a mindset that worked against the last investors into cybersecurity and enterprise software in mid-2025 when the negative sentiment started building, at least for now, it’s started working for the stocks in the sector again.
Meanwhile, this year’s biggest winner is also a good example of what can be an extended trade in either a bullish or bearish direction. Last year, institutional ownership of energy was at multi-year lows, Magoon said, referencing Bank of America data. “Reverse sentiment can be a great indicator,” he said.
But he cautioned that any selective buying of stocks that have dipped does have to contend with the risk that there is a potentially bigger drawdown in the market yet to come in 2026. That is because midterm election years historically have been marked by large drawdowns. “If you think it is bad right now, it could get a lot worse,” Magoon said. But he added that there’s a silver-lining in that data, too, for the patient investor. The market has posted very strong 12-month returns after midterm election drawdowns end. So, for investors with a longer-term time horizon and no need for short-term liquidity, Magoon said, “stick in there.”
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New innovation in the exchange-traded fund industry could come at a cost to investors during extreme conditions.
According to MFS Investment Management’s Jamie Harrison, ETFs involved in increasingly complex derivatives and less transparent markets may be in uncharted territory when it comes to violent downturns.
“Those would be something that you’d want to keep an eye on as volatility ramps up,” the firm’s head of ETF capital markets told CNBC’s “ETF Edge” this week. “As innovation continues to increase at a rapid pace within the ETF wrapper, [it’s] definitely something that we advise our clients to be really front-footed about… Lack of transparency could absolutely be an issue if we’re going to start seeing some deep sell-offs.”
His firm has been around since 1924 and is known for inventing the open-end mutual fund. Last year, ETF.com named MFS Investment Management as the best new ETF issuer.
“It’s important to do due diligence on the portfolio,” he said. “Having a firm that has deep partnerships, deep bench of subject matter experts that plays with the A-team in terms of the Street and liquidity providers available [are] super important.”
Liquidity as the real issue?
Harrison suggested the real issue is liquidity, particularly during a steep sell-off.
“We’ve all seen the news and the headlines around potential private credit ETFs. That picture becomes much more murky,” he added. “It’s up to advisors, to investors [and] to clients to really dig in and look under the hood and engage with their issuers.”
He noted investors will have to ask some tough questions.
“What does this look like in a 20% drawdown? How does this liquidity facility work? Am I going to be able to get in? Am I going to be able to get out? And if I’m able to get out, am I able to get out at a price that’s tight to NAV [net asset value], and what’s the infrastructure at your shop in terms of managing that consideration for me,” said Harrison.
Amplify ETFs’ Christian Magoon is also concerned about these newer ETF strategies could weather a monster drawdown. He listed private credit as a red flag.
“If your ETF owns private credit, I think it’s worth taking a look at, kind of what the standards are around liquidity and how that ETF is trading, because that should be a bit of a mismatch between the trading pace of ETFs and the underlying asset,” the firm’s CEO said in the same interview.
Magoon also highlighted potential issues surrounding equity-linked notes. The notes provide fixed income security while offering potentially higher returns linked to stocks or equity indexes.
“Those could potentially be in stress due to redemptions and the underlying credit risk. That’s another kind of unique derivative,” Magoon said. “I would very closely look at any ETF that has equity-linked notes should we get into a major drawdown or there be a contagion in private credit or something related to the banking system.”
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