"Big Banks" Citigroup: China's real estate sector will face impairment challenges in 2025, with China Jinmao, China Resources Land, and China Overseas as top picks

Citi published a research report indicating that the Chinese real estate industry will face significant impairment and declining gross margins in the fiscal year 2025, laying the groundwork for a new start from 2026 to 2030. Nevertheless, most real estate companies, especially state-owned enterprises, are still expected to record profits.

Citi believes that market challenges will intensify in the second half of 2025, coupled with the high base effect in the first quarter of 2025, leading to unclear sales targets for 2026. The destocking process is progressing smoothly, but due to the improvement in the quality of fourth-generation residential properties, sales achieved through existing inventory may decrease. Companies that complete debt restructuring are expected to record significant net profits after debt reduction or debt-to-equity swaps, and some companies may initiate a second restructuring plan. Some enterprises, such as CHINA RES LAND (01109.HK) and GREENTOWN CHINA (03900.HK), may undergo strategic adjustments after management transitions, requiring close attention to their subsequent plans.

Citi predicts that the core profits of 15 real estate companies without credit issues will decline by 34%, with gross margins dropping to 13.9%, down from 15.5% in 2024. Most companies are likely to experience a decline in profits, with CHINA RES LAND expected to see a year-on-year drop of 17% to a net profit of RMB 21.2 billion, while Longfor Group (00960.HK) may record a loss of RMB 2 billion.

Recent policy easing has driven improvements in the second-hand market sales in January 2026 (compared to December last year), but Citi believes that the policy-driven market rebound may be short-lived. Sales in March 2026 are expected to decline due to the high base effect in 2025, and profit warnings may be issued between February and March. The industry prefers CHINA JINMAO (00817.HK), CHINA RES LAND (01109.HK), and CHINA OVERSEAS (00688.HK)