1. [para. 1][para. 2] China's real estate market has undergone a drastic downturn since mid-2021 following regulatory tightening. Plunging sales have decimated investment and construction, bruised household balance sheets, and dragged down domestic consumption. Local governments, which heavily depend on land sales, have seen revenues collapse, stifling infrastructure investment. This slump has been a primary catalyst for China's broader economic deceleration.
2. [para. 3] The pressing question is whether the market has finally hit bottom. Evidence suggests it is remarkably close, although a full-fledged recovery will take time.
3. [para. 4][para. 5] Sales volume has plummeted by over half since peaking in 2021, with total sales by the end of 2026 projected to hover at roughly 45% of its level five years ago. This contraction aligns neatly with demographic shifts, as key indicators like newborns, marriages, and new urban residents have also halved from historical peaks. The market has essentially calibrated to these new contours, leaving limited room for further downside in sales volume.
4. [para. 6] Commercial housing sales relative to GDP tell a similar story. In 2025, commercial housing sales accounted for roughly 6% of GDP, barely above the level of 2003. With property sales value down 13% year-over-year in the first seven months of 2026 and nominal GDP growing 5.4% in the first half of the year, this ratio will shrink even further.
5. [para. 7] High-frequency data corroborates stabilization. In major cities, the sales area for both new and existing homes is hovering near 2025 levels, breaking the relentless decline pattern of recent years. Top-tier cities are finding their footing faster than smaller municipalities.
6. [para. 8] Price adjustments offer another crucial gauge. The National Bureau of Statistics' 70-city new-home price index fell a mere 13% from the third quarter of 2021 to the second quarter of 2026, which strains credulity. However, the 70-city existing-home price index paints a starker, likely more accurate picture: a decline of over 20% during the same period.
7. [para. 9][para. 10] If the steeper drop is accepted as the baseline, international comparisons provide a roadmap. Following the 2006 U.S. peak and the 2007 Spain peak, property prices in both countries cratered by 35% to 40% over roughly 24 quarters before finding a floor. If China follows a similar trajectory, prices could fall an additional 10% to 15% over the next 12 months before reaching equilibrium.
8. [para. 11] Once U.S. and Spanish markets cleared, prices rebounded significantly. Japan presents a cautionary tale of a 20-year slump with prices dropping over 40%, but China's current economic growth rate remains substantially higher than Japan's during its lost decades. Thus, China's property cycle is far more likely to mirror the U.S. and Spain than Japan.
9. [para. 12][para. 13][para. 14] Two significant hurdles remain before sustained recovery: inventory and policy shifts. At current absorption rates, unsold property inventory will reach an estimated 760 million square meters by the end of 2026, including 400 million square meters of residential space. This overhang is stabilizing after ballooning between 2021 and 2024, but it remains uncomfortably high. For prices to start rising again, total inventory must fall below 600 million square meters, with residential inventory dropping below 300 million.
10. [para. 15][para. 16][para. 17] The Aug. 28 policy marks a seismic shift in China's real estate model, transitioning from a pre-sale system to a finished-home sales regime. For decades, developers passed capital costs onto local governments, banks, contractors, and homebuyers through pre-sales. The new reform effectively deleverages every node of the development process and raises the capital threshold for builders. In the long run, this will stabilize prices and protect homebuyers, but in the near term, it will suppress construction activity and strain developers' balance sheets, leading to mounting cash-flow pressures.
11. [para. 18] China's property market may well stabilize over the next 12 months, but those waiting for a rapid price rebound and a flurry of new construction projects will need to practice patience. The bleeding may soon stop, but the healing has just begun.
AI generated, for reference only
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