China’s real estate market, which has endured a prolonged slump since 2021, is showing signs of potential recovery as recent support measures start to take effect. According to a Reuters poll conducted between November 15-28, home prices are anticipated to fall at a slower pace in 2024 and 2025 before stabilizing and beginning to rise by 2026. The findings suggest cautious optimism, reflecting policymakers’ efforts to rejuvenate a sector once vital to China’s economic growth.
The Reuters poll, comprising insights from 13 analysts, forecasts that home prices will decline by 6.0% in 2024, an improvement compared to the 8.5% drop predicted in August. By 2025, the rate of decline is expected to narrow further to 2.0%, and by 2026, analysts predict prices will see a 1.6% increase.
This trajectory marks a notable shift. In October, year-on-year home prices fell at the sharpest rate since 2015, but the month-on-month declines have moderated. Analysts attribute this to a combination of aggressive government measures and initial signs of improving buyer sentiment.
China’s central and local governments have implemented an array of measures since late 2023 to counter the property sector’s downturn.
- Lowering Minimum Down Payment Ratios: As of September, down payments for all housing categories were reduced to as low as 15%, marking a significant easing of purchasing barriers.
- Relaxing Home Purchase Restrictions: Policies limiting purchases in certain regions were loosened to encourage home buying.
- Tax Incentives: In November, the Ministry of Finance introduced tax breaks aimed at spurring demand.
These changes aim to rekindle confidence among both buyers and investors in a sector that once accounted for 25% of China’s GDP but has since experienced a contraction that impacted local government revenues and broader economic activity.
“The policy cascade since September has contributed to a significant recovery in housing sales, particularly in October,” noted Wang Xingping, a senior analyst at Fitch Bohua. However, Wang emphasized that “continuous efforts are still required” to ensure sustained stabilization.
Despite the policy-driven progress, underlying challenges remain. The sector’s recovery is constrained by imbalances in supply and demand, as well as the broader consumer and investor confidence crisis.
Gao Yuhong, a manager at CSCI Pengyuan Credit Rating, highlighted the central role of buyer sentiment in shaping recovery trends: “The decline in home prices in the current real estate cycle is mainly influenced by supply and demand, and home purchase expectations.”
Gao anticipates that first-tier cities, including Beijing, Shanghai, and Shenzhen, will take the lead in stabilizing by the second half of 2024 due to their stronger demand dynamics and deeper economic resilience.
While price declines may slow, the overall property market remains subdued. Analysts predict that:
- Property sales will shrink by 5.0% in 2025, an improvement from the 10.0% slump forecasted in August.
- Property investment is expected to drop by 8.0%, slightly exceeding the 7.5% decline projected earlier.
These forecasts reflect the sector’s struggle to align inventory levels with actual demand. Measures such as allowing the use of special bonds to purchase land and existing housing are seen as critical for reducing unsold inventory and stabilizing the market.
The property downturn’s impact extends beyond real estate. As one of the pillars of China’s economy, the sector’s struggles have rippled through related industries such as construction, finance, and consumer goods. This has exacerbated the country’s economic slowdown, particularly in light of weaker domestic consumption and sluggish global demand.
Analysts argue that the ongoing crisis has underscored the need for a structural overhaul of China’s economic model, which has historically relied on property-driven growth. Some policymakers and experts are advocating for a shift toward innovation, high-tech industries, and sustainable urbanization.
The recovery of China’s real estate market hinges on several factors:
- Sustained Policy Support: Continued monetary easing, fiscal incentives, and targeted measures to stimulate demand will be crucial.
- Restoring Consumer Confidence: Addressing the broader trust deficit among prospective homebuyers is essential to unlock pent-up demand.
- Balancing Supply and Demand: Policymakers must carefully manage inventory levels while encouraging new investments in regions with robust demand.
China’s property market trends carry implications far beyond its borders. A stabilization or recovery in the sector would not only bolster China’s economic performance but also benefit global commodity markets, particularly for materials like steel and copper that are heavily influenced by Chinese demand.
