China's real estate market is expected to decline more sharply than anticipated in 2025, extending the industry's downturn for a fifth consecutive year and delaying hopes for a market recovery, according to an S&P Global Ratings report published Thursday evening, writes UNN with reference to CNBC.
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Analysts predict that new home sales in the country will fall by 8% compared to last year, totaling between 8.8 and 9 trillion yuan (1.23 to 1.26 trillion dollars).
This is a much sharper decline than the 3% drop that the major rating agency predicted in May. At that time, analysts expected that the trade war and other external uncertainties would push China to strengthen support for the real estate sector, said Edward Chan, director of corporate ratings at S&P Global Ratings.
The main reason for the weaker forecast is that "homebuyer sentiment is still quite volatile," Chan said. Therefore, the government will need to continue supporting the sector and demand assistance in restoring homebuyer confidence.
In September 2024, Beijing called for efforts to "stop" the real estate market downturn. However, after a series of new measures were adopted last year, the political momentum for increased support seems to have slowed, the publication writes.
S&P notes that China's five-year mortgage rate – a benchmark for most mortgages – has fallen by only 10 basis points this year, compared to a 60 basis point drop in 2024. This indicates that Beijing is not easing policy as aggressively as before, despite the real estate market downturn.
In August, China's three largest cities eased home purchase restrictions to allow buyers to own multiple properties, but, as S&P notes, this measure mainly affected properties in less attractive city outskirts.
"If demand can be stabilized first in higher-tier cities, especially in first-tier [largest] cities, it will likely help make the trajectory of demand recovery more sustainable," Chan said.
For now, hopes of bottoming out in China's real estate sector look even more elusive, the publication notes.
S&P forecasts sales this year to be no more than 9 trillion yuan, and China's real estate market to halve in four years from 18.2 trillion yuan in 2021. The rating agency expects sales to fall by another 6-7% in 2026, with new home prices declining by 1.5-2.5%.
In past decades, homebuyers in China typically purchased apartments before construction was completed. But due to financial difficulties, developers faced financial difficulties, construction was delayed, which undermined consumer confidence. This prompted Beijing last year to announce a "white list" for financing approved unfinished projects.
According to S&P, as of August, the volume of completed but unsold housing increased to 762 million square meters compared to 753 million square meters in December 2024.
"The government is making a lot of effort to convince people that getting apartments is not a problem now," Chan said. "The problem is that overall demand in the country as a whole seems weaker than we expected."
He expects the government to intervene further, albeit gradually, when market weakness arises.
In August, some home purchase restrictions were eased, and Chinese Premier Li Qiang loudly stated that the issue of the real estate market downturn remains unresolved, indicating the need for additional support.
The following month, sales of China's 100 largest developers increased by 0.4% year-on-year, S&P reported, citing industry data.
The report states that as developers strive to survive, "the end result may be a shrinking market, but a healthier and more sustainable sector."