China’s real estate market is showing early signs of stabilization after a prolonged slump, as the sector undergoes an L-shaped recovery driven by policy support and shifting demand dynamics.
Key Highlights:
- Existing Home Sales Recovery: Sales of existing homes have rebounded to pre-correction levels in key cities, with notable growth in Shenzhen and Dalian. Demand is increasingly shifting toward existing properties rather than new developments.
- New Home Market Challenges: New home sales face pressure due to reduced land sales—down 40% year-on-year—and competition from abundant existing home inventories, affordable housing, and rentals. Supply constraints are leading to a concentration of new home sales in core cities with more inelastic demand.
- Policy Support: Government measures such as mortgage interest rate cuts and reduced downpayment requirements for second homes have helped ease market pressures.
- Housing Inventory: Unsold apartment inventories remain elevated, with new home stock in many cities estimated to take around two years to clear.
- Price Trends: Home prices have bottomed out in many lower-tier cities, with tier-3 and tier-4 cities experiencing significant price drops earlier this year. This suggests a potential floor for prices in these markets.
- Outlook: While full recovery may take time, limited new home supply and improving project quality could create investment opportunities, particularly if government policies adjust land prices and ease competition.
