Why China's Housing Market Is Still Searching For A Bottom

China’s housing sector is showing renewed signs of stress as the property downturn enters its fifth year, with surplus inventory continuing to weigh on prices.

Sales value among the top 100 developers fell 36% in November from a year earlier, a slight improvement from October’s 42% decline, according to data released Monday by China Real Estate Information Corp. For the first 11 months of the year, home sales contracted 19% compared with the same period a year earlier.

“The deterioration in the property data was real and concerning,” Hui Shan, chief China economist at Goldman Sachs, wrote in a note Monday, adding that the odds of additional housing stimulus measures have risen.

Industry research group China Index Academy reported Monday that secondary home prices across 100 surveyed Chinese cities declined 7.95% in November, a marginal widening from the prior month, and attributed the deeper slump to heavy listing volumes and weak buyer sentiment.

Morgan Stanley estimates that average sales among 25 major developers fell 42% year on year in November, and expects that weakness to persist into the spring.

Beijing’s objective to “halt the declines in housing market,” announced in September last year, now appears “increasingly unrealistic,” said William Wu, a property analyst at Daiwa Capital Market, citing renewed turmoil in the sector during the fourth quarter amid accelerating price declines and the reappearance of high-profile defaults.

Government support? Vanke’s recent request for bondholder approval to defer by one year an onshore bond maturing Dec. 15 has renewed concerns about liquidity across the sector.

Once regarded as one of China’s stronger developers, Vanke avoided immediate default largely because of financial backing from its state-owned shareholder Shenzhen Metro. In early November, Shenzhen said it would seek collateral for pledges tied to roughly 20 billion yuan of previously unsecured loans to Vanke, unsettling creditors and driving bond prices to record lows.

The unexpected move “reflects a liquidity crisis that will likely end in a comprehensive restructuring,” said Cathy Lu, a credit analyst at Octus, formerly Reorg, while noting that a broad wave of extensions or defaults following Vanke’s postponement remains unlikely.

“The property crisis has weeded out developers with weak balance sheets,” Lu added, saying the government is unlikely to pursue a wide-ranging bailout to prevent Vanke’s collapse and is instead focused on restructuring debt and ensuring home deliveries.

Rating agency S&P Global last Friday downgraded Vanke’s long-term issue rating to “CCC-” from “CCC,” citing an elevated risk of a distressed restructuring at the developer within the next six months.

Vanke’s bonds extended losses on Tuesday, with several yuan-denominated issues falling more than 20%, prompting a trading suspension by the Shenzhen Stock Exchange.

In May last year, Chinese authorities provided 300 billion yuan to financial institutions to lend to local state-owned enterprises for the purchase of already completed unsold apartments.

That intervention has not been sufficient to lift the sector out of its slump, with excess completed inventory remaining a major drag on price recovery.

Completed and unsold inventory totaled about 762 million square meters at the end of August 2025, up from 753 million square meters at the end of December 2024, S&P Global reported. The agency expects inventory destocking to remain a policy priority.

If policy measures successfully tighten land supply to developers and reduce apartment inventory, home prices could find a floor as early as the first half of 2027, the Economist Intelligence Unit said.

EUI economists noted that China’s inventory turnover ratio, measured by dividing residential inventory by average monthly sales, has shortened by five months from its peak of 25.9 months in April 2025. A shorter clearance cycle, whether driven by lower supply or stronger demand, is a sign of price stabilization.

At the current pace, the clearance cycle may require another 18 months to reach a 12–18 month range, which is historically healthier, the research firm said.

Several economists interviewed by CNBC expect Chinese authorities to roll out incremental easing measures to arrest the slump in a sector that has long been a key engine of the economy.

Falling prices and weaker sales have further strained liquidity for developers, prompting banks to list more foreclosed properties — a negative feedback loop that policymakers need to break, Goldman’s Shan warned.

Beijing could consider an interest-rate subsidy to lower mortgage costs for buyers without harming banks, stabilize prices and provide time for a gradual, demand-led recovery, Morgan Stanley suggested.

The bank estimates that a one percentage point reduction in mortgage costs in the second quarter of 2026 could boost new home sales and help alleviate deflationary pressures next year, with prices most likely to find a floor in higher-tier cities.