China Resources Land: A Steady Bet on Urban Recovery

In a Chinese property market still navigating post-pandemic turbulence, China Resources Land (HK:1109) stands out as a rare beacon of resilience. Its focus on high-quality rental assets in tier-1 cities positions it to capitalize on China's gradual consumption recovery—a trend increasingly driven by urbanization, policy support, and evolving housing preferences. With a dividend yield of 6.59% and a stock price trading at a discount to historical averages, investors may find compelling value in this overlooked landlord of China's most dynamic cities.

The Rental Engine: Outperforming in Prime Markets
The company's investment property segment has become its growth cornerstone. In May 2025, rental income surged 13% year-over-year, defying broader market softness in residential sales. This strength is anchored in assets like the Shenzhen MIXc and Beijing CR Building—mixed-use complexes that blend retail, offices, and residential units.

Tier-1 cities are the linchpin of this strategy. Rents in Shanghai and Shenzhen rose 3–5% year-over-year in early 2025, with average rental yields climbing to 2.2–2.5%—levels not seen since before the 2021 property crisis. This reflects rising demand from young professionals and migrants delaying home purchases amid economic uncertainty, a trend amplified by government policies. First-time buyers now face lower down payment requirements (20% in many cities) and preferential mortgage rates, but many still opt to rent as they prioritize liquidity in an uncertain labor market.

The company's valuation appears attractive relative to its fundamentals. Despite the rental income growth, its shares trade at 0.6x price-to-book ratio—a discount to its five-year average of 0.8x. Meanwhile, its dividend yield remains among the highest in the sector, reflecting stable cash flows from its investment properties.

Policy Tailwinds and Structural Shifts
Beijing's efforts to stabilize the property market are indirectly boosting rental demand. The RMB300 billion fund to complete stalled housing projects has reduced supply-side risks, while relaxed pre-sale fund rules have eased developer liquidity pressures. More importantly, policy shifts are redefining homeownership norms. By promoting long-term rental housing and public REITs, authorities aim to normalize renting as a viable tenure option—directly benefiting landlords like China Resources Land.

The broader consumption recovery is also tied to urbanization. Tier-1 cities, which account for 60% of China's GDP but only 10% of its population, are seeing transaction volumes rise 15–20% year-over-year. This activity spills over into commercial real estate, where China Resources Land's office and retail spaces command premium rents. Logistics and industrial properties, another growth area, saw rents climb 3–5% in 2025, driven by e-commerce expansion and supply chain upgrades.

Risks and Considerations
Lower-tier cities remain a drag, with inventory levels still elevated and rents stagnant. However, China Resources Land's focus on prime urban assets limits exposure to these weaker markets. A more pressing risk is the broader economic backdrop: household debt at 60% of GDP and cautious consumer sentiment could prolong the recovery. Yet the company's defensive rental income—less cyclical than residential sales—buffers it against these headwinds.

Investment Thesis
China Resources Land offers a dual-play opportunity: exposure to both the rental market's secular growth and a stock undervalued on traditional metrics. With a dividend yield above 6%, the stock provides income stability while positioning investors to benefit from rising urban consumption.

The company's May 2025 results hint at stronger performance in Q2, and with tier-1 cities leading the recovery, the path forward appears clearer. For investors seeking a leveraged position in China's urban revival—without the volatility of speculative property bets—China Resources Land merits serious consideration.

Final Take: Buy, with a target price reflecting a 0.8x P/B ratio.