China’s real estate sector is on the brink of a historic crash, with estimates now calling for a steeper crash than earlier expected. S&P Global Ratings, in fact, estimates an 8% sales decrease from last year. More recent projections put this decline at leading to total sales of between 8.8 trillion and 9.0 trillion yuan, or approximately $1.23 trillion to $1.26 trillion, for 2025. If so, this would be the fifth straight year in which such a downturn has occurred.
The real property sector is still faced with persisting issues. As of August, the amount of completed but unsold housing has ballooned beyond 762 million square meters, compared to 753 million square meters in December 2024. Although sales have increased slightly, at 0.4% year-over-year for China’s top 100 developers, the future does not look bright. The five-year loan prime rate is the benchmark for the majority of mortgages. This year, it has only decreased by 10 basis points, a marked departure from the 60 basis point reduction we experienced in 2024.
In 2021, China’s real estate market sales had skyrocketed to an astounding 18.2 trillion yuan. For this year’s forecast, a steep downturn is anticipated, with sales forecasted to fall to 9 trillion yuan or less. Sales are forecast by S&P to fall another 6% to 7% in 2026. They foresee a decline in primary home prices of 1.5% to 2.5% over that period.
In mid-August, Chinese Premier Li Qiang made a rare official comment on China’s continuing real estate downturn. He underscored the urgent demand for better solutions to address this perennial problem. In September 2024, under pressure from both chambers of parliament, the government announced new measures to stop the alarming deterioration in the industry.
So far the federal government has acted decisively to restore public confidence. Chan, a leading analyst in the field, remarked that they are trying to message that protecting their units is not on the table. He stressed that the federal government needs to continue demonstrating support for emerging technology. This support is key to restoring homebuyers’ confidence.
To offset the downturn, many of China’s largest cities have rolled back restrictions on home purchases. Under current law, buyers can own several properties. This provision is intended to encourage more demand in the nation’s larger metro areas, creating a greater chance for a deeper, more sustainable recovery path. Chan mentioned that stabilizing demand first in tier-one cities would be key for any recovery to happen.
“If demand can be stabilized first in the higher-tier cities, particularly in the first-tier largest cities first, that would probably help the trajectory of the demand recovery to be more sustainable.” – Chan
Analysts warn that even with these moves, the long-term ramifications will leave China with a much smaller market. S&P sees the silver lining in this smaller market with potential for a healthier, more resilient sector in the long run.