China’s already-battered real estate market is on course for a much bigger fall than analysts expected. The industry is preparing itself for its fifth year of downturn in a row. According to S&P Global Ratings, the sector could experience a $70 billion hit in sales. They predict an overwhelming $117 billion decrease in state property values and $23 billion state sales by 2025. As the report illustrates, the current course is worse than previous projections. Sales are now projected to drop even further – by a staggering 7% – instead of the previously expected 3%.
According to S&P, China’s top 100 developers will see their total sales shrink in 2023. By 2025, they anticipate those sales will decline to just 9 trillion yuan or less. This drop is nothing short of a crisis. That’s a stark decrease from 18.2 trillion yuan in 2021, nearly cutting the market’s worth in half in just four years. The good news is that report is pointing to an 8% decline in new home sales over last year. This drop further highlights today’s persistent property sector crisis.
In August, the completed but unsold housing inventory skyrocketed to an amazing 762 million square meters. This’ve lived though, like so much of housing market downturn has cushioned fall. China’s 100 largest developers experienced a modest 0.4% YoY sales growth. As experts are quick to caution, this increase does little to counteract the overall downward trend in the market.
The S&P report goes on to caution that home prices will be under continued downward pressure. It forecasts a drop of 1.5% to 2.5% in value of primary homes by 2026. S&P forecasts that sales will be down another 6% to 7% this year. This forecast comes on the heels of a predicted decline in 2025.
With demand still sluggish China’s biggest cities have lifted or are in the process of lifting purchase restrictions. Today, buyers are allowed to own as many properties as they want. Analysts are adamant that only government intervention can help return confidence to the home-buying public. Chan, an industry expert, stated, “So the government will need to continue to support the sector and demand to help restore homebuyers’ confidence.”
To his credit, he stressed that stabilizing demand in the country’s largest, densest cities is key to achieving a truly sustainable recovery. “If demand can be stabilized first in the higher-tier cities, particularly in the first-tier cities first, that would probably help the trajectory of the demand recovery to be more sustainable,” Chan added.
Looking beyond these hurdles, S&P struck a cautiously optimistic tone on the outlook for China’s real estate market. “The end result may be a smaller market, but a healthier and more resilient sector,” they noted.
China’s five-year loan prime rate, a benchmark for the country’s long-term loans, declined further in September, by a modest 10 bps so far this year. By contrast, the benchmark for all but the smallest mortgages had a massive cut of 60 basis points in 2024. Unsurprisingly, these modifications show yet another sign of a commitment from lawmakers to relieve some of the strain on would-be homebuyers.