A residential building under construction at China Vanke’s Isle Maison development in Hefei, China, on November 27, 2023.
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China’s beleaguered real estate sector may not start to turn around until the second half of next year, even with the latest stimulus measures, three research firms predicted this month.
After months of gradual measures, in late September, Chinese President Xi Jinping led a top-level meeting and vowed to “stop the decline in the real estate market.” Earlier this month, the Treasury introduced further measures aimed at stabilizing the real estate sector.
In an Oct. 22 memo titled “2025 Outlook for China Real Estate: Bottom in sight,” Goldman Sachs analysts wrote that “a comprehensive and coordinated easing policy is “We have finally reached a turning point in the downward spiral of the housing market, which is progressing against the backdrop of this.” . ”
“This time is different from previous gradual easing measures,” the report said.
Analysts expect China’s real estate prices to stabilize in the second half of 2025 and rise by an average of 2% in two years. Goldman predicted that real estate sales and new home construction are likely not to stabilize until 2027.
S&P Global Ratings and Morgan Stanley also released a report this month predicting that China’s real estate market will bottom out in the second half of 2025.
“If governments continue to prioritize developer financing and support for inventory reduction, real estate sales and prices will continue to rise in 2025,” S&P Global Ratings Director Edward Chan and his team wrote in an Oct. 17 note. We think there is a possibility that things will stabilize towards the second half of the year.” They warned that it would take time for the policy to have an effect.
The Chinese government has made clear that efforts to support the struggling real estate sector are secondary to its goal of strengthening advanced manufacturing as a new engine of growth. But this is no easy feat, as real estate once accounted for more than a quarter of gross domestic product and was tied to both household wealth and local government finances. Chinese developers are saddled with debt and are increasingly struggling to deliver sold homes, dampening consumer sentiment.
Analysts are closely watching next week’s Congress for details on spending to reduce housing stock.
Goldman estimates that additional government spending of 8 trillion yuan ($1.12 trillion) has not yet been announced.
“Without such stimulus, the real estate market downturn could last another three years,” Goldman analysts warned. They said such support would need to address developers’ liquidity issues, reduce the inventory of unsold homes and ensure delivery of sold and unfinished homes.
Homes in China are usually sold before they are completed. That business model proved unsustainable as the Chinese government cracked down on developers’ heavy reliance on debt for growth, and slowing economic growth reduced homebuyer demand. did.
At the end of last year, Nomura estimated that about 20 million sold homes remained unfinished. Officials last month showed that around 4 million homes had been completed and handed over to buyers under this year’s whitelist program and promised to accelerate financial support.
In June, before the latest stimulus package was announced, Morgan Stanley predicted that inventory consolidation would lead to a “recovery in real estate loan demand in late 2025 or 2026.”
Analysts estimate that about 30% of unsold inventory will never be sold, leaving banks and other unspecified entities to pick up the cost.
Recent efforts to boost confidence in China have given a boost to the real estate market. According to real estate research firm China Index Academy, real estate sales in 22 major cities fell by about 4% in October compared to the same month last year, a sharp decline compared to September’s drop of more than 25%.
We won’t go back to the boom times
However, stabilization of the real estate market does not mean a full-fledged recovery. Analysts expect the recovery in home sales and new construction to be subdued in the coming years.
S&P expects China’s real estate sales to fall to less than about 9 trillion yuan this year, and further decline to 8 trillion yuan in 2025. This is less than half of the 18 trillion yuan in sales in 2021.
Analysts attribute the decline in sales to a growing inventory of unsold homes, which continues to put pressure on developers who rely on price cuts to attract buyers and reduce inventory.
Real estate sales by China’s top 100 developers fell 37.7% year-on-year in September, the sharpest decline since April of this year, S&P said, citing data from China Real Estate Information. Ta. It wasn’t a one-month plunge. According to the data, sales fell 36.6% year-on-year in the first nine months of this year.
Analysts at S&P Global said the weaker sales would further hit developer liquidity, leading to a “lack of confidence” and forcing developers to take a “cautious approach” to acquiring land and starting new projects. ”.
The number of new construction projects will plunge by 42% in 2023 from a peak in 2019, with a further 23% year-on-year decline in the first eight months of 2024, according to an S&P Global analysis of official data from the Office for National Statistics. did.
More needs to be done
Analysts remain cautious about the impact of China’s real estate stimulus package.
“In our view, the scale of support is insufficient and we face implementation challenges to halt the current downward spiral,” Goldman analysts said, adding that if policy fails to deliver, real estate prices will decline. He warned that the stock could fall another 20-25%.
In one of the few inventory-specific measures announced so far, the People’s Bank of China in May announced a 3,000-dollar refinance program for state-owned enterprises to buy unsold completed homes and convert them into affordable housing. He promised 100 million yuan.
“While useful, they represent only a small proportion (4-6%) of the total completed housing stock,” S&P said.
Morgan Stanley analysts said in a report on Sunday that in a recent meeting with banks in Zhejiang, one of China’s wealthiest provinces, the government’s new program to extend loans for the purchase of housing stock. indicated that banks have not yet participated.
