Why China’s real estate market is still searching for a bottom
China’s housing market is flashing fresh warning signs as the property downturn runs into its fifth year, with excess inventory dragging home prices. Sales of the top 100 developers plunged 36% in terms of value in November from a year earlier, despite a modest pick-up from a 42% decline in October, according to data published Monday by China Real Estate Information Corp . In the first 11 months of the year, home sales shrank 19% from a year ago. “The worsening of the property data was real and concerning,” Hui Shan, chief China economist at Goldman Sachs, said in a note Monday, suggesting that the likelihood of another round of housing stimulus measures had increased. Separately, industry research body China Index Academy said Monday that secondary home prices in 100 Chinese cities surveyed dropped 7.95% in November, widening slightly from the prior month. The research firm attributed the deepening price slump to high listing volumes and weak homebuyer sentiment. Morgan Stanley estimates average sales of 25 major developers declined 42% year on year in November, with that sluggishness likely extending into spring next year. Beijing’s goal to “halt the declines in housing market,” announced in September last year, appears “increasingly unrealistic,” said William Wu, a property analyst at Daiwa Capital Market, citing “renewed turmoil” in the sector in the fourth quarter amid accelerating home price declines and “resurfacing of high-profile defaults.” Government support? Real estate giant China Vanke’s recent decision to seek bondholders’ approval for a 1-year deferral on its onshore bond, maturing Dec. 15, has sparked fresh fears about liquidity in the sector. Vanke, once considered one of China’s healthier developers, was able to avert default risks largely thanks to financial support from its deep-pocketed state-owned shareholder Shenzhen Metro. In early November, Shenzhen said it would request collateral for pledges for about 20 billion yuan worth of previously unsecured loans to Vanke, rattling creditors and sending bond prices to record lows. The surprise move “reflects a liquidity crisis that will likely end in a comprehensive restructuring,” said Cathy Lu, a credit analyst at financial data provider Octus, formerly known as Reorg, adding that a broader wave of extensions or defaults following Vanke’s postponement remains unlikely. “The property crisis has weeded out [developers with] weak balance sheets,” Lu noted, adding that the government is unlikely to launch a broad bail-out plan to contain Vanke’s fall, but focusing on “restructuring” its debt and ensuring home deliveries. Rating agency S & P Global last Friday downgraded Vanke’s long-term issue credit ratings to “CCC-” from “CCC” due to heightened risk of a “distressed restructuring” at the embattled developer within the next six months. The company’s bonds extended losses on Tuesday, with several yuan bonds falling over 20%, triggering a trading suspension by the Shenzhen Stock Exchange . In May last year, Chinese authorities provided 300 billion yuan to financial institutions to lend to local state-owned enterprises so they can buy unsold apartments that have already been built. That amount seems to have not been large enough to meaningfully lift the sector out from its slump, with excess inventory overhang remaining a key drag on housing price recovery. The number of completed and unsold inventory stood at about 762 million square meters as of end-August 2025, up from 753 million square meters as of end-December 2024, according S & P Global . The agency expects inventory destocking to remain a policy priority. Should policy measures become effective in tightening land supplies to developers, which would reduce apartment inventory, home prices could bottom out as early as the first half of 2027, according to Economist Intelligence Unit. The inventory turnover ratio, calculated by dividing residential inventory by average monthly sales, in China has shortened by five months from its peak of 25.9 months in April 2025, EUI economists said in a note last week. A shorter inventory turnover cycle, whether driven by shrinking supply or rising demand, signals price stabilization. At the current pace, it may take another year and a half for the clearance cycle to shorten to 12-18 months — a relatively healthy range by historical standards, the research firm said. Several economists whom CNBC spoke to expect China’s authorities to unleash incremental policy easing measures to stem the slump in a sector that has long been an important engine of its economy. The falling prices and fewer property sales have further strained cash-strapped developers, prompting banks to list more foreclosed properties on the market — “this is precisely the type of ‘negative feedback loop’ that policymakers need to cut off,” Goldman’s Shan warned. Beijing may consider an “interest-rate subsidy” which would lower homebuyers’ cost of mortgages without hurting banks, stabilize home prices and “buy time for a gradual demand-led recovery,” according to Morgan Stanley. The Wall Street bank estimates that a 1 percentage point cut in mortgage costs in the second quarter of 2026 could lift new home sales and help ease deflation pressures next year, with prices likely to find a floor in higher-tier cities.
