Daiwa Securities released a research report indicating that China's new home sales in March fell 15% year-on-year. Given the high base of comparison, the narrowing contraction suggests genuine improvement in the market. However, investment activity remains sluggish, reflecting continued caution among developers, while the secondary housing market shows strong price recovery momentum.

Daiwa views the stabilization of the property market as a positive signal but maintains a cautious stance due to the following factors: 1) The improvement may be difficult to sustain, as seen in the second quarter of 2025, especially with the persistent significant gap between rental yields and financing costs; 2) A structural recovery in household cash flow has yet to materialize.

Furthermore, the report suggests that a stronger property market reduces the likelihood of additional easing measures. Overall, Daiwa believes downside risk for sector share prices remains limited. However, with no clear short-term stimulus expected, the firm prefers state-owned enterprises over high-beta stocks in the near term. Daiwa's top pick remains CHINA RES LAND (01109, HKD 31.24, Buy rating).

Key upside/downside risks: The performance of policy measures could significantly exceed or fall short of market expectations.