S&P Global Ratings analysts stated in a report distributed Thursday that an end is in sight for China's yearslong property market slump. The report forecasts that residential real estate prices may hit a bottom in the third quarter of 2028, while prices in major cities like Beijing and Shanghai are likely to recover as soon as next year. This outlook marks a significant shift from February, when S&P noted that high levels of unsold housing kept recovery out of reach. Credit analyst Edward Chan attributed the change to two recent government policies: restrictions on selling unfinished properties announced in August and Premier Li Qiang’s pledge to stabilize the sector, followed by mortgage rate subsidies for first-time buyers of units under 1.5 million yuan ($220,000) and smaller than 120 square meters.
The report highlights that 2026 is the first year of real estate inventory destocking despite the multi-year slump. Chan noted that developers are now buying less land and developing fewer projects, which helps reduce oversupply. Historical context shows the scale of the challenge; Nomura estimated in 2023 that unfinished, pre-sold homes were about 20 times the size of Country Garden, once China's largest non-state-owned developer. Comparing global crises, S&P observed that China’s supply contraction is occurring earlier and with greater magnitude than Japan’s 1991-2014 crisis. Residential prices have fallen 22% since their 2021 peak, compared to a 67% drop in Japan and a 26% decline in the U.S. during the financial crisis. Additionally, Guotai Junan International Chief Economist Hao Zhou predicted potential growth in existing home prices for tier-one cities in the fourth quarter of this year, citing stabilized prices in Beijing and narrowed declines in Shanghai.
The revised forecast signals a structural transition in China's property sector from demand-driven expansion to supply-constrained stabilization. By restricting the sale of unfinished properties and subsidizing mortgages for specific unit sizes, policymakers are actively curbing the speculative cycle that fueled previous debt-driven growth. The data indicates that the primary mechanism for price recovery is not a sudden surge in buyer confidence, but rather the deliberate reduction of inventory through decreased land purchases and project development. This approach mirrors strategies used in other markets to address oversupply, suggesting that the path to stability relies heavily on institutional discipline among developers rather than immediate consumer uptake.
Market participants should monitor the divergence between tier-one cities and the broader national average, as recovery appears uneven. While Shanghai and Beijing show signs of stabilizing or rising prices, the sustainability of this trend depends on whether the mortgage subsidies create genuine new demand or merely accelerate planned purchases. Morgan Stanley analysts caution that the subsidies may bring forward transactions without expanding the total pool of buyers. Consequently, the critical indicator for long-term health will be whether the supply contraction continues to align with actual absorption rates, preventing a secondary wave of inventory buildup if demand fails to materialize beyond the initial policy stimulus.
