China’s Real Estate Troubles Worsen Despite Policy Support

China’s property sector is continuing to exhibit troubling signs as it enters a fifth consecutive year of recession, despite repeated intervention efforts by the central government. Persistent excess supply has driven home prices even lower, weakening buyer sentiment at a time when many major developers are grappling with severe liquidity pressures.

Data from China Real Estate Information Corp show that sales by the country’s 100 largest developers fell 36% year-on-year in November—an improvement from the 42% decline recorded in October, yet still indicative of a market struggling to regain momentum. Over the first eleven months of the year, sales were down 19% from 2024 levels, underscoring the prolonged stagnation that continues to undermine recovery prospects.

The weakness extends to the secondary market as well. According to the China Index Academy, resale home prices across 100 surveyed cities dropped 7.95% in November, a sharper monthly decline attributed to high listing volumes and widespread buyer reluctance.

Morgan Stanley estimates that average sales among the 25 largest developers fell 42% in November compared with a year earlier, cautioning that the downturn may persist at least until next spring.

A particularly alarming development is the financial distress of China Vanke, long considered among the industry’s most stable players. The company is now seeking bondholder approval to defer repayment of notes due December 15, raising fears that liquidity strains are spreading even to firms previously viewed as relatively sound.

Vanke had benefitted from strong backing from its major shareholder, the state-owned Shenzhen Metro. However, in early November the company unexpectedly demanded collateral for a prior 20-billion-yuan loan, jolting the market. Vanke’s bonds subsequently plunged, with many issues losing over 20% of their value, prompting a trading halt by the Shenzhen Stock Exchange.

S&P Global recently downgraded Vanke to “CCC-”, citing the heightened likelihood of debt restructuring within six months. Analysts note that a broad industry-wide bailout remains improbable; instead, authorities are expected to prioritize completing unfinished housing projects and approach company-level challenges individually.

By the end of August 2025, completed but unsold housing stock reached 762 million square meters, slightly above levels at the end of 2024. This immense inventory continues to weigh heavily on prices, limiting the impact of earlier support measures such as the 300-billion-yuan program launched in May 2024 for state-owned enterprises to purchase excess units.

Experts at the Economist Intelligence Unit suggest that if authorities manage to control land supply and curb new project launches, home prices could reach a bottom as early as the first half of 2027. Inventory turnover—measured by the number of months needed to clear existing supply—has improved from a peak of 25.9 months in April to about 20 months, but achieving a “healthy” level of 12 to 18 months could take another 18 months or more.

As real estate remains a central pillar of China’s economy, the sector’s extended slump poses significant challenges for policymakers. Goldman Sachs has warned that unless the cycle of falling prices, shrinking sales, rising bad debt, asset seizures, and further price declines is broken, the repercussions could be severe.

One policy option under consideration is subsidizing mortgage interest payments, which would involve the government covering part of buyers’ borrowing costs. Morgan Stanley estimates that if interest rates were lowered by an additional percentage point in the second quarter of 2026, purchasing power would strengthen and deflationary pressures would ease. Nevertheless, authorities remain cautious, balancing the need to support the market against the imperative of preserving overall financial stability.