Weekend Long Read: Why China’s Housing Market Could Rise From the Ashes in 2025

China’s real estate sector has experienced a significant downturn over the past three years, seeing a stark decline in new-property sales. At its peak in 2021, the sector recorded 1.8 billion square meters in floor space sales, generating 18 trillion yuan ($2.8 trillion). By 2024, these numbers had almost halved to 974 million square meters and 9.7 trillion yuan, respectively, highlighting the sector’s struggles. [para. 1]

A multitude of real estate developers, including several large ones with annual sales exceeding 100 billion yuan, have filed for bankruptcy or have been delisted. Many private developers find themselves caught in debt restructuring cycles. For years, real estate was a key pillar of China’s economy, substantially contributing to fiscal resources through land sales and driving economic growth. The model of high debt, high turnover, and high leverage propelled the industry’s rapid expansion. [para. 2][para. 3]

The sector’s decline was accelerated by new economic drivers emerging post-pandemic, including the rise of electric vehicles and technology. These shifts, combined with unsustainable property prices and policies to curb excessive debt, led to a sudden collapse. The decreased market demand impacted not only the real estate sector but also had repercussions across various industries. In the short term, new drivers are unlikely to replace real estate’s pivotal role in the economy. [para. 4][para. 5]

Despite the downturn, there have been policy-driven rallies in the real estate market since 2022, though most were short-lived. However, a more sustainable impact seems possible following Politburo interventions, which called for stabilizing measures. These efforts have somewhat restored market confidence. [para. 6]

Signs of stabilization are visible in major cities, where October saw rare year-on-year sales growth among top developers. While November sales dipped monthly, they still rose significantly from September levels. Pre-owned homes in cities like Shanghai and Shenzhen are popular again, which may drive a broader market recovery if positive trends continue in these first-tier cities. [para. 7]

While home sales’ decline has shown signs of slowing, a full recovery requires both sales and property prices to rebound, re-attracting investment in property. A stable real estate market in the long term depends on macroeconomic recovery and consistent policy support, with housing demand linked to household confidence, economic growth prospects, employment, and income stability. Given the short-term lack of confidence, the sector’s recovery may take longer. [para. 8][para. 9]

Governments have emphasized proactive fiscal policies and a moderately loose monetary stance, focusing on stabilizing both real estate and stock markets. A Central Economic Work Conference underscored continuing stabilization efforts, with expectations of further stimulus policies. By 2025, these support policies may see the market bottom out and the decline in sales significantly narrow. [para. 10][para. 11][para. 12]

Inventory levels highlight ongoing challenges, with unsold homes amounting to 2.52 billion square meters by mid-2024. The destocking cycle is expected to last three and a half years, a historic high. Initiatives have curtailed new housing starts severely, which could help reduce inventory over time. [para. 13][para. 14]

Specific support measures, such as local governments purchasing unsold land and homes for affordable housing, alongside urban village renovations, are set to aid recovery. Expanded in nearly 300 cities, these programs aim to stimulate housing demand by as much as 40-50 million square meters annually in the coming years. [para. 15][para. 16][para. 17]

Stabilizing housing prices is crucial to balancing supply and demand, pegged at around 800 million square meters and 8 trillion yuan annually. The real estate market's recovery typically progresses with increased pre-owned home sales, followed by stabilization of home prices, and then analogous stabilization in new homes sales and prices. These indicators signal that the market decline is ending. [para. 18]