Commentary: No Floor Yet for China’s Property Market, but It’s Getting Close

[para. 1] The current outlook for China’s economy is tightly linked to the fate of its real estate sector, which accounts for over 30% of the nation's GDP and employment. The ongoing transformation within this sector is fundamentally reshaping China’s economic structure, and until the property market finds stability, a broader economic recovery will remain out of reach.

[para. 2] Despite noticeable shifts in the alignment of supply, demand, and asset values suggesting progress, China’s real estate sector has not yet bottomed out. Financial and fiscal pressures persist, creating the possibility that a steep, disorderly drop in housing prices could introduce systemic risk to the economy.

[para. 3] Much of the uncertainty hinges on Beijing’s policy stance. Recent policy signals—ranging from Politburo meetings to major government gatherings—suggest a redefinition of real estate as a public welfare issue. The government is pivoting away from policies that previously relied on real estate-fueled, debt-driven growth, in favor of pursuing “high-quality development” and building long-term mechanisms for stability.

[para. 4] This marks a fundamental policy shift: rather than “using real estate to save the economy,” policy now aims to “use the economy to support real estate.” Authorities hope that growth in consumption, manufacturing investment, and exports will gradually reawaken property demand, but currently, the sluggish property market is negatively affecting the broader economy.

[para. 5] The sharp correction in property prices has led to several structural benefits. Lower property costs have reduced key production expenses, creating a divergence where China faces deflation as opposed to the inflation seen elsewhere. These developments lower living costs for low-income groups and foster social stability during the transition, while also reducing innovation costs and boosting export competitiveness.

[para. 6] The relationship between the real estate sector and the broader real economy now defines China’s macroeconomic landscape. The primary macroeconomic question has shifted from “How fast will GDP grow?” to “When and how will the real estate sector bottom out, and what will recovery look like?”

[para. 7] Historical comparisons with the United States and Japan provide insights but cannot be directly applied to China, whose situation is unique. Despite ongoing difficulties, China has not experienced the type of financial or fiscal crises that afflicted the U.S. or Japan in past real estate downturns.

[para. 8] Unlike the market-driven risk clearing in the US or Japan, China's state-controlled financial institutions and aversion to bankruptcies have so far prevented systemic collapse, but this has also delayed a true bottom and market reset.

[para. 9] In the US, home prices bottomed in under eight years due to mechanisms such as personal bankruptcy laws and Federal Reserve interventions, albeit at the price of a vast increase in federal debt (now over $37 trillion). China’s adjustment, underway for nearly four years, has not yet culminated in a similarly clear rebound.

[para. 10][para. 11] The risk of prolonged stagnation—as seen in Japan’s property slump that lasted nearly two decades—looms over China, which has yet to see significant deleveraging or sharp price drops typical of sector-wide risk clearing. Nonetheless, signs of stabilization, such as improving rental yields and shifting focus toward mortgage risk management, are emerging.

[para. 12] Despite these positive signals, unresolved household leverage and low confidence mean a meaningful property market rebound has not yet occurred. Recent signs of warming property prices in late 2024 and early 2025 suggest that policy stimulus could reverse current trends, but permanent recovery is not assured.

[para. 13][para. 14] A more profound challenge is demographic, as an aging population reduces long-term demand for property. The share of household wealth held in real estate is projected to fall from 70-80% to under 50%, necessitating the reallocation of roughly 100 trillion yuan ($14 trillion) into other assets.

[para. 15] As a result, there's a visible shift toward alternative stores of wealth, such as gold and equities. Gold is experiencing a super bull cycle, and Chinese stocks are also undergoing revaluation. The era of effortless wealth accumulation through property is ending, paving the way for a more diversified wealth paradigm.