Guotai Haitong Securities has reaffirmed its "Overweight" rating on the property services sector. The firm suggests that since 2026, the industry has been grappling with the aftermath of rapid expansion in prior years, compounded by economic headwinds that have pressured operational performance. However, as business models and market expectations mature, companies are increasingly prioritizing intrinsic growth and leveraging new technologies to drive cost efficiencies and sustainable expansion. With valuations hovering near long-term lows, the sector appears poised for a dual recovery in both earnings and valuation multiples.

Under economic strain, the sector's revenue growth and net profit attributable to shareholders have decelerated, though leading players have demonstrated resilience, with average gross margins experiencing a slight decline. Notably, two property management firms have posted interim dividend yields exceeding 5%. In the first half of 2026, the 21 listed property services companies under close tracking (hereafter "key firms") achieved a 3.9% year-on-year increase in operating revenue, a slight slowdown, with the top five players by scale recording the highest average growth at 6.3%. During the same period, net profit attributable to shareholders for these key firms rose 4.4% year-on-year, marking a significant moderation. The top five again led with a 5.4% growth rate. The average gross margin for key firms stood at 20.4%, down 1.2 percentage points from the prior year.

Administrative expense ratios showed a slower pace of decline on average in the first half of 2026. Cash reserves exceeding RMB 10 billion are now held by just one firm, indicating a weakened overall capacity to buffer against risks. While most companies maintain receivables below revenue levels, the overall receivables position has deteriorated. Goodwill on balance sheets is generally shrinking. The majority of property firms did not declare interim dividends. As of September 4, 2026, the average interim dividend yield for key firms was approximately 1.36%, with two companies—Star Commercial and Yuexiu Services—boasting yields above 5%.

Managed area growth remains tepid, expanding at a low single-digit pace, while quality commercial management firms continue to see some expansion. Occupancy rates have inched lower. In the first half of 2026, the average year-on-year growth in managed area for key firms held steady at a modest 1%. Certain firms with elevated contract-to-managed area ratios retain potential for future growth. A select few commercial office operators have shown notable efficiency, with Star Commercial generating over RMB 100 per square meter in revenue during the period. China Resources Mixc Lifestyle added 12 shopping malls to its managed portfolio in H1 2026. Looking ahead, Powerlong Commercial plans to open approximately 201,200 square meters of new space in H2 2026. Overall, occupancy rates for commercial management firms dipped slightly in the first half, with Star Commercial leading at 92.8%, followed by Powerlong Commercial at 91.3%. In terms of revenue per unit of commercial management services, Star Commercial topped the list at RMB 1.90 per square meter.

Valuations have retreated modestly from recent lows but retain substantial long-term upside. As of September 4, 2026, the average 2026 P/E ratio for key firms was 10.04 times, corresponding to a 2026 PEG ratio of 1.10 times. Measuring market cap against contracted area and managed area, the averages were 0.72 times and 0.69 times, respectively. Guotai Haitong believes the influence of affiliated developers on property management companies has waned, with firms now focusing more on independent growth avenues such as third-party expansion. Year-to-date, share prices have broadly trended downward, with only 5 of the 21 tracked firms posting gains while the remaining 16 experienced declines.

Key risks include slower-than-expected expansion in managed area, rising labor costs, underperforming mergers and acquisitions, weaker-than-anticipated value-added services growth, and policy-related uncertainties.