(Editor's Note: Editor's note: S&P Global Ratings believes there is a high degree of unpredictability around policy implementation by the U.S. administration and possible responses--specifically with regard to tariffs--and the potential effect on economies, supply chains, and credit conditions around the world. As a result, our baseline forecasts carry a significant amount of uncertainty. As situations evolve, we will gauge the macro and credit materiality of potential and actual policy shifts and reassess our guidance accordingly (see our research here: spglobal.com/ratings). )
Key Takeaways
- China's property sector is finally approaching stabilization, with primary home prices set to drop by a modest 1% this year and primary sales volume likely falling 2%.
- The government will make the property market more of a priority this year, in our view, to stabilize the economy in the face of U.S. trade tariffs.
- Property firms most focused on upper-tier markets, and with open access to funding, should fare best.
China's grinding property downturn is finally losing steam. Policymakers see a steadying of home prices as key to consumer demand, we believe, and thus important to countering tariff pressures. Firms focusing on upper-tier markets with good access to funding will benefit most from this stabilization; those that don't, likely won't.
We expect nationwide primary property sales to drop 3% to renminbi (RMB) 9.3 to RMB9.4 trillion in 2025. The view assumes that primary home prices (per square meter) will slip 1% this year, and that primary sales volumes (in square meters) will fall 2%. This is a modest decline compared with the 17% drop in primary sales in 2024.
We believe the government is more determined to reboot the property sector. This will be key to supporting consumer confidence, which Beijing has identified as its economic priority (see "China Consumer Outlook: A Pressing Policy Initiative Takes Shape," April 15, 2025).
Signs Of Stabilization Are Emerging
China's higher-tier property markets have been recovering since the government rolled out supportive policies in late September 2024.
Based on our sample of 10 upper-tier cities, secondary sales volume (by gross floor area) has been growing on a year-on-year basis since October 2024 (see chart 1). The gains points to a recovery in homebuyers' confidence and demand in these markets. We believe a similar stabilization of primary sales volumes in higher-tier cities will follow.
Chart 1
Although both primary and secondary home prices continue to fall on a year-on-year basis, the rate of decline have been narrowing (see charts 2 and 3).
Chart 2
Chart 3
Primary inventories have also been reducing. According to China Real Estate Information Corp. (CRIC), a private research firm, home inventory levels were 12.6 months in tier-one cities and 18.1 months in tier-two cities, as of end-January 2025. This is a sharp improvement from the 20-25 months of inventory held by developers in those markets in the second half of 2024. We believe that supply and demand are swinging into equilibrium in these markets at least.
While inventory levels are improving in lower-tier cities, these markets remain a long way from recovery. Developers' housing inventory in tier-three cities stood at about 30 months at end-January, which is substantial.
The Interplay Between Property And Domestic Consumption
In our view, the Chinese government sees greater need for a healthy property sector amid increased trade tensions between China and the U.S.
The property sector remains a pillar of the Chinese economy. The ratio of China's national primary property sales to Chinese GDP was 7.2% in 2024. This is meaningful even if less than half the pre-downturn level of 15.8% in 2021.
The stabilization of home prices, in our view, could support a key economic objective: boosting domestic consumption. The slump in consumer confidence has coincided with the fall in home prices, triggering sharply negative wealth effects (see chart 4). Reversing these effects would be positive for the economy, we assume.
We believe officials want to support the property sector to reinforce the economy. However, they do not want to be seen as bailing out developers that overborrowed and overbuilt during the boom years, we assume.
Chart 4
Likely Support Measures To Come
We believe the government has the motive to support the sector, but what are the means? Supportive policies, in our view, could include:
- Lowering mortgage rates;
- A further relaxing of home-purchase restrictions;
- A bigger push to redevelop urban villages and dilapidated housing;
- Direct subsidies for home purchases; and
- Directly buying developers' unsold inventory.
Mortgage rates. China's five-year loan prime rate (LPR), a reference for property mortgages, has been on a downward trend (see chart 5);
Chart 5
On May 7, 2025, the People's Bank of China announced a 0.1 percentage point reduction in the seven-day reverse repo rate, one of the policy interest rates. We believe further policy rate cuts may follow (see "Economic Research: Global Macro Update: Seismic Shift In U.S. Trade Policy Will Slow World Growth," May 1, 2025). This may lead to further decreases in the LPR, in our view.
Additionally, the central bank lowered the interest rate on individual housing-provident-fund loans by 0.25 percentage points. Qualified homebuyers can get a loan based on this rate, which is cheaper than a commercial mortgage based on the LPR.
Relaxing home-purchase restrictions. Many Chinese cities have eased constraints on home purchases.
However, the country's biggest municipal markets are its four tier-one cities of Guangzhou, Beijing, Shanghai and Shenzhen. Of these only Guangzhou has relaxed all its purchasing restrictions.
There is scope then for easing, which would stimulate demand in these important markets. We believe the prime driver of demand now is upgraders seeking quality homes in favorable locations, particularly in these tier-one cities.
Urban redevelopment. During a policy forum in March 2025 known as Two Sessions, the government said it would ramp up redevelopment of urban villages and dilapidated housing. This could help create incremental property buying demand as residents bought out from such housing may need to relocate, and may have the resources to buy a home.
The scope of the initiative could be large. In 2024, the government launched more than 1,800 urban-redevelopment projects, involving more than 1.3 million households.
Indeed, the government rolled out similar programs in the past, namely the shantytown redevelopment plan, which greatly stimulated demand (see "China's RMB350 Billion Policy Push May Help Developer Destocking," Jan. 23, 2024).
Home-purchase subsidies. Some local governments in lower-tier cities are already giving out substantial subsidies. Homebuyers may get up to RMB200,000 for a primary-home purchase in cities such as Changzhou in Jiangsu province and Yiwu in Zhejiang province.
Buying idle land and unsold apartments. In November 2024, the Ministry of Natural Resources said that special-purpose bonds could be used to buy idle land and unsold apartments from developers. Guangdong province has issued RMB30.7 billion of the instruments to buy back idle land from developers.
During the Two Sessions planning forum in March, officials announced a RMB500 billion increase in quota to issue special-purpose bonds, with part of the proceeds earmarked for buying back land from developers.
Although we expect priority would be given to local government financing vehicles and other state-owned enterprises, select projects of privately owned developers may also benefit.
Developers will likely use the money to finish existing projects, paying taxes, or perhaps to launch fresh property projects in the city. The amount that could be used for repayment of holdco debt, however, will likely be minimal.
Price Projections For 2025: Stabilization In Tier-One Cities
Home prices: We expect primary home prices in tier-one cities to stabilize by year-end 2025.
Developers' inventory of 12.6 months in tier-one cities at end-January 2025 is not far from the roughly 10 months of inventory registered among China's top 100 cities during the boom years of 2016-2019.
The inventory levels of tier-two cities are still moderately high, in our view. We therefore expect price stabilization in these markets will take longer: prices for primary homes in such cities could stabilize by the second quarter of 2026.
Inventories of tier-three cities are still at an elevated level. It will take an even longer time to digest this inventory and will therefore take longer for prices to stabilize.
Primary-home prices will likely drop 1% in 2025 nationwide, we assume, and secondary home prices by 2%-3% (see table 1).
Chart 6
Table 1
| Our 2025 and 2026 forecasts | ||||||
|---|---|---|---|---|---|---|
| Year-on-year change | ||||||
| (%) | 2025e | 2026e | ||||
| Primary housing prices | (1) | 0 | ||||
| Tier-one markets | 0 | 1 | ||||
| Tier-two markets | (1) | 0 | ||||
| Tier-three or below markets | (4) | (2) | ||||
| Secondary residential housing prices* | (2) to (3) | (0) | ||||
| Area sold (primary housing sales volume) | (2) | 0 | ||||
| Overall primary sales (tril. RMB) | 9.3-9.4 | 9.3-9.4 | ||||
| *Forecast based on government data covering 70 cities. e--Estimate. RMB--Renminbi. Source: S&P Global Ratings. | ||||||
Sales volumes: In our view, homebuyers' confidence will improve as prices steady.
We expect primary sales volume will fall 2% in 2025 (see table 1). This is in line with our previous expectation of a 1% to 3% drop in sales volume in 2025 (see "China Property Watch: Charting A Path To Stabilization," Oct. 17, 2024).
Our base-case holds that the government will roll out more supportive measures to the sector this year. If policymakers don't roll out such support, primary property sales might drop to about RMB9 trillion in 2025, versus our base-projection of RMB9.3-RMB9.4 trillion.
Developers That Operate In Higher-Tier Markets Are Better Placed
The developers that will fare best in the current market need to satisfy two conditions: a strong presence in upper-tier markets and good access to funding. Such entities are usually state owned.
Developers that focus on higher-tier markets have consistently outperformed their peers (see charts 7a and 7b). China Resources Land Ltd., China Poly Group Corp. and Greentown China Holdings Ltd. stand out.
Chart 7a
Chart 7b
China Overseas Land & Investment Ltd. (COLI), while significantly outperforming peers in 2024, saw sales hiccups in the first quarter of this year. This was mostly due to a high-base set in March 2024, when COLI launched a large residential project in Shanghai.
We expect COLI to generate stable sales in 2025 compared with last year, backed by a series of project launches in Beijing, Shanghai and Shenzhen over the next few months.
We believe China Jinmao Holdings Group Ltd.'s renewed focus on land acquisitions in higher-tier cities will support sales. Indeed, its sales significantly outperformed peers in the first quarter of 2025.
Land acquisitions are mainly concentrated in upper-tier markets. About three-quarters of COLI's land acquisitions from end-October 2024 to end-March 2025 were in first-tier cities (in renminbi terms). More than two-thirds of China Jinmao Holdings Group Ltd.'s land acquisitions from the start of 2024 to end-February 2025 were in Beijing and Shanghai.
Fully 93% of land acquisitions by China Resources Land in 2024 were in tiers one and two cities. About 92% of Greentown's land acquisitions in 2024 were in such cities; about half were in Beijing, Shanghai and Hangzhou.
These developers all benefit from good access to funding. This is giving them cash to buy land in higher-tier cities. These developers have solid banking relationships and can tap bond markets onshore and offshore.
Table 2
| State-owned developers retain good access to bond markets | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Onshore issuance (bil. RMB) | Offshore issuance (mil. US$) | |||||||||
| 2024 | Q1 2025 | 2024 | Q1 2025 | |||||||
| Jinmao | 5.0 | 3.3 | - | - | ||||||
| COLI | 9.0 | 2.0 | - | - | ||||||
| CR Land | 14.0 | 4.5 | - | - | ||||||
| Greentown | 8.0 | 3.0 | - | 500 | ||||||
| Poly | 35.9 | 2.7 | - | - | ||||||
| Issuance as of April 24, 2025. RMB--Renminbi. Q1--First quarter. Sources: Company disclosures, Wind and S&P Global Ratings. | ||||||||||
What About Developers That Lack Diversified Funding Channels?
In our view, developers that are not yet able to tap unsecured bond markets will need to continue to pledge investment properties against fresh lending. For example:
- We estimate that Longfor Group Holdings Ltd. will borrow RMB15 billion-RMB16 billion this year by pledging investment properties against bank loans; the borrowing would address RMB7 billion in onshore bonds maturing this year, and RMB8.5 billion equivalent of offshore bank loans coming due in 2025.
- Seazen Group Ltd. will likely use its RMB19 billion of unencumbered assets to address the RMB7.3 billion of offshore senior notes due in 2025 and 2026. Seazen had RMB10.7 billion of onshore bonds outstanding as of end-December 2024; the firm has pledged assets, including commercial property, against all this borrowing.
The pledging of assets against bank loans subordinates bondholders, which hold unsecured debt.
Developers May Need To Rethink Their Business Model
China's property sales have dropped by almost half from their peak in 2021. It's a radical downsizing that will require a fresh business model, we assume.
Entities will likely aim to maintain--not chase--scale with a focus on the wealthy markets that provide the best sell-through rates and cash flow.
We believe the presale model is on the decline (see "China Property Watch: Charting A Path To Stabilization," Oct. 17, 2024). If the presale model were to be completely eliminated due to regulatory changes, all developers will no longer be able to boost returns using the fast-churn asset model.
In our view, developers will instead compete on product differentiation. Local governments of some higher-tier cities have removed their guidance on the homes prices developers can set. This will give property firms more latitude to raise prices.
For example, the Shenzhen government encouraged developers to set their own selling prices since late September 2024. In December 2024, COLI acquired a land plot in Beijing for RMB11 billion for which the government did not set guidance on selling prices.
Developers may be able to charge price premiums if their products are tailored to homebuyers' needs. Rising margins would restore developers' balance sheets and market confidence. It would all feed into a stabilization that may yet blossom into an upturn.
Writer: Jasper Moiseiwitsch
Digital Designer: Evy Cheung
Related Research
- Economic Research: Global Macro Update: Seismic Shift In U.S. Trade Policy Will Slow World Growth," May 1, 2025
- Seazen Companies 'B' Ratings Affirmed On Satisfactory Rentals Amid Weak Property Sales; Outlook Negative, April 30, 2025
- Greentown's Stabilizing Sales And Margins Could Keep Leverage Intact, April 2, 2025
- COLI's Strong Sales Bolster Market Leadership, April 1, 2025
- Longfor's Rentals Cushion Development Weakness, March 31, 2025
- China Overseas Grand Oceans Could Keep Leverage In Check, March 28, 2025
- China Resources Land's Growing Rental Income And Debt Control Support Credit Strength, March 27, 2025
- Jinmao's Land Acquisitions In Higher-Tier Cities Will Help Solidify Its Market Position, March 27, 2025
- China Consumer Outlook: A Pressing Policy Initiative Takes Shape, April 15, 2025
- Surging Secondary Sales To Stabilize China Property In 2025, Jan. 22, 2025
- China Property Watch: Charting A Path To Stabilization, Oct. 17, 2024
- China's RMB350 Billion Policy Push May Help Developer Destocking, Jan. 23, 2024
This report does not constitute a rating action.
| Primary Credit Analysts: | Edward Chan, CFA, FRM, Hong Kong + 852 2533 3539; edward.chan@spglobal.com |
| Fan Gao, CFA, Hong Kong + (852) 2533-3595; fan.gao@spglobal.com | |
| Secondary Contact: | Lawrence Lu, CFA, Hong Kong + 85225333517; lawrence.lu@spglobal.com |
| Asia-Pacific Chief Economist: | Louis Kuijs, Hong Kong +852 9319 7500; louis.kuijs@spglobal.com |
| Research Assistant: | Sylvia Zhao, Hong Kong |
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