Key Takeaways
- We believe China's property market has stabilized, with sales (primary and secondary) likely hitting about Chinese renminbi (RMB) 17 trillion in 2025, roughly equal to the 2024 level.
- We continue to view secondary home sales as a leading indicator of primary sales, with higher-value properties in upper-tier cities leading the recovery.
- Risk factors to this base case include policy-continuity risk and the possibility of sporadic defaults by developers, which could again dampen sentiment.
The Chinese property sector may have finally found its bottom. S&P Global Ratings believes surging secondary sales will help this market stabilize toward the second half of 2025.
While growth is skewing toward the secondary market, which is of little help to developers, we believe the gains are a harbinger of improving sentiment. This should eventually translate into rising primary sales and better credit metrics for our rated entities.
We offer two important caveats. The first is that China policies rolled out in September 2024 sparked the recent jump in sales; if the effects of these policies weaken without any follow-up measures, this recovery may falter. The second is that a sudden default by a surviving Chinese developer this year may hit sentiment before any rebound truly takes hold.
Higher-End, Upper-Tier Secondary Sales Will Propel The Rebound
China's secondary housing market jumped in first and second-tier cities in the fourth quarter of 2024, after the policy releases in September 2024. The actions included cutting interest rates on existing mortgages and easing the downpayment requirements for second homes (see "China Property Watch: Charting A Path To Stabilization," published on RatingsDirect on Oct. 17, 2024).
Two months later, China recorded its first year-on-year growth in national primary home sales volume since the market turmoil started in June 2021 (see chart 1). Full-year data published by the National Bureau of Statistics last week showed the year-on-year growth continued in December 2024, with primary sales up 0.4% by area and 2.8% by sales value.
The proximity of the rebound to the policy shift have raised questions on whether the gains are sustainable. Specifically, whether they are just a short-term reaction to fairly modest policy moves, or if the measures have truly marked the end of China's property crisis.
Chart 1
Signs that this recovery is a true turning point may lie in the second-hand housing market. This segment has been outperforming the primary market in terms of growth since 2022. The September measures revitalized this segment, particularly in higher-tier cities. More than 20,000 second-hand homes changed hands in Beijing in December 2024, the highest such volumes in more than 20 months.
We believe that this shows real appetite for homes remains sound in China. It also indicates to us that government policies are resulting in a sequenced recovery. In our view, richer, upper-tier cities will turn around first, eventually boosting the confidence and demand of consumers in more peripheral regions (see "China Property Watch: A Slow, Sequential Recovery In 2024," Oct. 15, 2023).
Volumes Are Up, Prices Are Down
Price stabilization in the secondary market will be key to the sustainability of this recovery. Here again trends are improving: the decline in second-hand housing prices is narrowing, with first-tier cities experiencing the most pronounced recovery. The price effects in second-tier cities have been more muted, another indication that this is a sequenced rebound starting in the richer, larger cities.
Chart 2
Sentiment has evolved. Extreme pessimism prevailed in July-August 2024, when prices were declining across the board, and national monthly sales slumped. While prices have yet to fully stabilize, we believe they have dropped to a market-clearing level. Secondary unit sales rose about 74% (by transacted gross floor area) in December 2024 from a recent trough in late September 2024, based on our analysis of a sample of 14 large Chinese cities.
Chart 3
The increase in transaction volumes for second-hand homes in these 14 cities have outpaced those of first-hand homes. This uptick can largely be attributed to price adjustments that have made second-hand properties more attractive. Notably, prices in first, second and third-tier cities have decreased by about 15% from their peak at the end of 2021, creating a more affordable environment for buyers. This compares with only about a 9% price drop for primary homes.
Table 1
| Secondary home price has corrected to a point that some homebuyers returned to market | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Change in accumulative secondary price changes from December 2021 to December 2024, compared with primary prices changes | ||||||||||
| Price change (%) | 70 cities | Tier-one cities | Tier-two cities | Tier-three cities | ||||||
| Secondary | (15.2) | (9.4) | (14.4) | (16.5) | ||||||
| Primary | (8.7) | (1.5) | (6.3) | (11.5) | ||||||
| Price levels in December 2021 are the baseline from which we calculate accumulative price changes based on year-on-year percentage growth figures, which are released monthly. Sources: National Bureau of Statistics of China and S&P Global Ratings. | ||||||||||
Chart 4
Policies Have Boosted Affordability, Raising Incremental Demand
The September 2024 policy action relaxed the rules on purchases of both entry-level and premium residences in higher-tier cities. The measures unlocked demand from people that were not qualified to buy previously.
We believe the prime source of the new demand that is now emerging is from people upgrading their homes, either by buying their first residences in higher-tier cities (thus gaining access to these cities), or from incumbent residents buying higher-quality homes in these cities. Lower downpayment and mortgage rates and a significant cut to secondary transaction taxes have made upgrade purchases more affordable.
The demand for premium housing is most apparent in Shanghai. In 2024, Shanghai recorded total (primary and secondary) sales of about 3,100 homes each worth more than Chinese renminbi (RMB) 30 million. Shanghai alone generated more than half of the sales for premium homes in China last year, by unit. Among these premium home sales in Shanghai, 80% were primary, which was good news for developers.
Secondary Spurt: Stabilization Or Cannibalization?
The interplay between the primary and secondary markets is a key part of the recovery story. The more pessimistic view for the industry is that buyers remain skeptical about the capacity of developers to deliver homes for which they prepaid. This skepticism continues to steer buyers toward the secondary market.
Developers don't directly reap benefits from secondary sales. Indeed, secondary demand could cannibalize primary sales, reducing developers' cash flow and capacity for debt repayments. Many meanwhile continue to sit on towering inventories of unsold primary units, which depresses sentiment, now as before.
The more optimistic view for the industry is that secondary demand is still demand. Rising appetite for such units indicates to us that the market broadly is normalizing.
Moreover, as homeowners sell residences in the second-hand market, they may reinvest proceeds into more premium first-hand homes, as seen in Shanghai. This dynamic could help foster a recovery in the new-housing market.
We assume both views are somewhat correct. On balance, however, the secondary sales rebound is probably more of a positive signal for the sector. As 2025 plays out, we will be scrutinizing this primary-secondary interplay, particularly how pricing and supply in one market affects demand for the other.
China Property Finds Its Floor At The RMB17 Trillion Level
We believe the China property sector--spanning both primary and secondary transactions--will generate about RMB17 trillion in sales in 2025, as it did in 2024. Our view assumes a stabilization of prices in higher-tier cities, and a general increase in sales volumes. The primary market will likely generate RMB8 trillion-RMB8.5 trillion of sales in 2025, compared with about RMB9.7 trillion in 2024. The upshot is the secondary segment will become a bigger component of this RMB17 trillion market.
Chart 5
What does this mean for developers? It will likely be another difficult year. They will continue to compete for a slice of a shrinking primary market. One offsetting factor is that the number of players is shrinking too: the sector is down to a handful of large privately owned enterprises, with state-owned entities increasingly dominating.
The market is stabilizing. But credit strains will likely remain the state of play in 2025.
Editor: Jasper Moiseiwitsch
Related Research
- China Vanke Downgraded Two Notches To 'B-' On Weak Liquidity; Ratings Placed On CreditWatch Negative, Jan. 20, 2025
- China Property Watch: Charting A Path To Stabilization, Oct. 17, 2024
- China Property Watch: A Slow, Sequential Recovery In 2024," Oct. 15, 2023
This report does not constitute a rating action.
| Primary Credit Analyst: | Esther Liu, Hong Kong + 852 2533 3556; esther.liu@spglobal.com |
| Secondary Contacts: | Fan Gao, CFA, Hong Kong + (852) 2533-3595; fan.gao@spglobal.com |
| Lawrence Lu, CFA, Hong Kong + 85225333517; lawrence.lu@spglobal.com | |
| Research Assistant: | Sylvia Zhao, Hong Kong |
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