A fresh wave of property declines reveals just how fragile the country’s real estate “recovery” really is. Last month, S&P Global Ratings struck a note of cautious optimism about China’s housing market. After nearly two years of brutal corrections, policymakers had ramped up support, and the worst, it seemed, was finally over. Tier 1 cities were seeing shallower year-on-year declines. Monthly home prices were even ticking upward by late 2024. “The sector is finally approaching stabilization,” the May 11 report declared.
But that optimism has quickly run into a wall of reality. According to newly released official data, new and second-hand home prices across 70 Chinese cities fell at their fastest monthly pace in seven and eight months, respectively. Real estate investment dropped 12% year-on-year, while new home sales fell 3.3%—both sharper declines than the month before. The only Tier 1 city where prices rose faster was Shanghai, underscoring how narrow the rebound truly is.
The takeaway? China’s housing market is not out of the woods. In fact, the much-anticipated bottom may not be a bottom at all—but rather, a deceptive plateau before another leg down.
S&P’s analysis was not baseless. Toward the end of 2024, there were genuine green shoots: new home starts had slowed, reducing future supply; Beijing had unveiled a raft of supportive measures including mortgage rate cuts, relaxed home purchase restrictions, and local government incentives to absorb unsold stock. More importantly, some developers—like Longfor and Poly Developments—reported rising interest from homebuyers in select urban areas.
These signs were interpreted as the beginning of a turn. Tier 1 cities like Beijing, Guangzhou, and Shanghai—long regarded as bellwethers—were seeing less severe price drops. In a few months, they even posted marginal monthly gains. Combined with a broader push to stabilize developers’ balance sheets and ensure project delivery, the narrative of a “soft landing” for the sector began to take hold.
However, the latest figures are a stark reminder that stabilization cannot rest on sentiment alone. When home prices reverse course and investment drops sharply again, it signals not just weak demand—but deteriorating confidence.
At the heart of the slump is a simple truth: Chinese households are still not ready to buy. Many are weighed down by job insecurity, falling asset values, and fear that buying a home now could lead to losses later. The crisis sparked by the Evergrande and Country Garden meltdowns has left deep scars. Millions of homebuyers were burned by delayed or abandoned construction. Even with regulatory pressure on developers to finish projects, trust has not fully returned.
Furthermore, the broader economic environment remains shaky. Youth unemployment remains high. Private sector sentiment is subdued. Household savings rates are elevated, suggesting that consumers are choosing to defer big-ticket purchases rather than jump into a volatile housing market.
In lower-tier cities, where oversupply is rampant and demographics are deteriorating, the situation is even more precarious. These cities account for the bulk of China’s housing inventory—and they’re dragging down the national average. No amount of stimulus can create real demand where it simply doesn’t exist.
The Chinese government is not standing still. In recent months, it has encouraged banks to cut mortgage rates and down payment ratios. It has prodded local governments to buy up unsold homes for public housing. And in some cities, authorities have even offered direct cash incentives to attract buyers. But while these measures have temporarily propped up prices in premium locations, they’ve failed to spark a broad-based revival. This suggests a structural limit to what policy can achieve in the current climate.
The problem isn’t liquidity. It’s confidence. And confidence is hard to engineer—especially when market participants are behaving rationally in the face of persistent downside risks. Even central bank officials have acknowledged the limits of stimulus. At a recent press briefing, a PBOC deputy governor noted that “restoring expectations” would take more than just monetary easing. That’s bureaucratic speak for: this could take years.
These are the implications for the economy:
1. Growth Will Stay Uneven
With real estate contributing up to 25–30% of China’s GDP through direct and indirect channels, a prolonged downturn in the sector will continue to weigh on broader economic growth. Industrial demand, construction activity, and related services will remain subdued, putting pressure on regional governments that rely on land sales to fund operations.
This creates a dangerous loop: weak housing weakens local finances, which weakens infrastructure investment, which in turn drags on GDP.
2. Tier 1 Cities Will Pull Away
Shanghai’s relative price growth stands in contrast to stagnation elsewhere. This underscores the divergence in urban fortunes. The more developed cities, with strong job markets and better amenities, are consolidating demand. In contrast, smaller cities with shrinking populations and bloated inventories may be locked into a long deflationary grind.
This dynamic will increasingly bifurcate policy responses. Expect place-based interventions tailored to city tiers rather than broad national campaigns.
3. Structural Reforms May Follow
Beijing is quietly laying the groundwork for deeper reforms. These could include restructuring local government financing vehicles (LGFVs), improving tenant rights, and tightening oversight of developers’ escrow accounts. While politically challenging, such reforms are increasingly viewed as necessary to break the boom-bust cycle.
Still, these efforts will take time. Until then, housing will remain a drag, not a driver, of the Chinese economy.
The idea that China’s property market was stabilizing always rested on shaky ground. The recent data confirms what many feared: that the rebound was more sentiment than substance. Policymakers are now faced with a narrowing set of options. More stimulus risks stoking financial instability. Doing nothing risks prolonged stagnation.
The real challenge is psychological: rebuilding trust in a market that broke many people’s financial futures. This is not a crisis that can be solved with subsidies or rate cuts alone. It will require regulatory integrity, transparent governance, and a credible long-term vision for how housing fits into China’s future growth model.
For now, investors, businesses, and policymakers should prepare for more volatility. The worst may not be behind us—but merely paused. And if the housing sector remains weak, so too will the hopes of a strong, sustained Chinese recovery.
There’s also a reputational cost at stake. For years, China’s property sector was seen as a store of value, a tool of upward mobility, and a proxy for middle-class prosperity. That perception is unraveling. The longer it takes to restore stability and trust, the harder it will be to convince younger generations that owning property is worth the risk. This isn’t just a real estate problem—it’s a generational reset.
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