China’s real estate sector is facing a collapse comparable to that of the U.S. subprime mortgage crisis. It’s now projected to drop much faster than anticipated in 2025. S&P Global Ratings recently cautioned that revenue in China’s property market may fall to nine trillion yuan or less. This steep decrease is a stark departure from the 18.2 trillion yuan spent in 2021. This trend shows that the market will contract by 50% in only four short years. That’s up from 48 in 2021 but still indicates a fifth straight year of fatality increase.
S&P’s downward revision is indicative of broader headwinds facing the industry. Analysts expect new home sales to be down 8% over last year. The latter think the total will come in at between 8.8 trillion and 9 trillion yuan. S&P estimates that sales will fall an additional 6% to 7% in 2026. This decline will deepen the already acute challenges the industry is feeling.
The four corners have only made the situation worse. By August, completed but unsold housing inventory spiked to 762 million square meters, up from 753 million square meters in December 2024. The rising inventory further indicates a rapidly expanding gap between the supply and demand in this frenzied market.
On the developer side, China’s top 100 developers were resilient with a 0.4% year-over-year decline in sales. The long-term picture is still quite grim. Primary home prices are now projected to be down 1.5% to 2.5% in 2026. Uncertainty about the economy is making buyers shy away.
In terms of monetary policy, China’s five-year loan prime rate has seen only a modest reduction of 10 basis points so far in 2025. This token relaxation is a sign that Beijing is continuing to tread cautiously on any large scale stimulus to the economy. This is a significant shift from 2024, when the rate was cut by 60 basis points. The government’s overly cautious approach can only serve to further complicate the ongoing recovery efforts in the housing market.
By September 2024, the Chinese government realized that intervention was necessary and the time to act was immediate. They urged federal intervention to end the continuing slide into recession for the real estate industry. The housing ministry is expected to hold a briefing to discuss strategies aimed at revitalizing the property market and restoring confidence among homebuyers.
Chan, who is an industry analyst, noted during the webinar that government support has been essential to shoring up demand.
“So the government will need to continue to support the sector and demand to help restore homebuyers’ confidence.” – Chan
He further stressed that given limited fiscal space, demand stabilization efforts should be primarily targeted at higher-tier cities to enable a more sustainable recovery trajectory.
“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
As the market faces these challenges, observers note that while the end result may be a smaller market, it could ultimately lead to a healthier and more resilient sector.
“The end result may be a smaller market, but also a healthier and more resilient sector.” – S&P report
The future is unclear both for China’s real estate market as it continues to contend with the headwinds of internal and external pressures. With ongoing government initiatives and potential policy adjustments on the horizon, stakeholders await clarity on how these efforts will impact homebuyer sentiment and overall market conditions.