Commentary: China’s Property Market Recovery Looms as Industry Shifts into New Era

China's real estate market has entered a new phase starting from a downturn that began in July 2021, signaling a critical shift for the property sector. Moving forward, the industry will operate under new patterns and demands distinct from those of the past two decades. Historically, real estate has been crucial in propelling economic growth during crises like the 2003 SARS outbreak and the 2008 global financial crisis, improving living standards and enhancing urbanization by addressing limited housing space. However, with the Chinese economy advancing into a new phase, the significance of real estate in economic growth is reducing [para. 1][para. 2].

Currently, the per capita housing space in China is about two-thirds of that in the United States, while its per capita GDP is only one-sixth. The recent regulatory measures in the property market align with China's economic transition towards innovation-driven development, focusing on fostering new growth drivers, economic resilience, and global competitiveness. There has been a significant decline in property loans, from 29% of total credit in 2019 to 20.9% by the third quarter of 2024, indicating a strategic shift of resources towards sectors like advanced manufacturing and modern services. During this transformation, the property industry is urged to focus on high-quality development [para. 3][para. 4].

The real estate sector faces immense challenges, characterized by declining demand and increasing inventory. Sales of newly built homes have plunged by 44% over three years, from 1.794 billion square meters in 2021 to a projected 1 billion in 2024. The China Index Academy reports 21.3 billion square meters of land transactions occurred between 2014 and 2023, but only 14.7 billion square meters of commercial housing were sold, leaving an inventory of 6.6 billion square meters. Addressing these challenges requires a comprehensive approach [para. 5][para. 6].

A multi-pronged strategy involves reclaiming idle land and stabilizing the land market, aligning local government land supply with the de-stocking cycle, encouraging real estate companies to exit or transform for better housing quality, providing incentives for homebuyers, increasing residents’ incomes, and focusing on de-stocking commercial and office properties. Additionally, simplifying taxes on commercial property transactions and converting eligible spaces into rental housing are recommended measures [para. 7][para. 8][para. 9].

Since July 2021, the sharp downturn in property sales has begun to stabilize, hitting a first growth phase in November 2024 after substantial decline. The central government has implemented proactive policies to counter the downturn, including easing regulations in major cities and employing funds from special bond issuance by the Ministry of Finance to buy existing commercial housing and reduce inventory. The downturn is expected to lessen over the next one to two years, with major cities likely stabilizing sooner [para. 10][para. 11][para. 12].

With the real estate market in a downturn for over three years, companies have had to adapt business models, moving away from strategies of “high turnover, high leverage, and high debt.” The government now emphasizes building high-quality homes. The market is witnessing reduced leverage among listed developers, with an average asset-liability ratio decrease from 64.67% in 2020 to 60.99% in 2024 [para. 13][para. 14].

Five emerging trends in the property market involve a shrinking new housing supply, dominance of pre-owned home transactions, value retention and appreciation in first-tier cities, urban renewal initiatives, and enhancement of the affordable housing system. These trends reflect significant shifts in China’s real estate market dynamics and regulatory landscape [para. 15][para. 16][para. 17][para. 18][para. 19].