China’s Long Property Slump May Be Nearing a Turning Point as Supply Falls

Table of Contents

• You might want to know
• Main Topic
• Key Insights Table
• Afterwards...

You might want to know

• What has changed in China’s property market outlook, and why do analysts think prices may be approaching a bottom?
• Could recent gains in major cities signal a lasting recovery, or are they mainly bringing forward purchases that would have happened later?

Main Topic

BEIJING — China’s prolonged real estate downturn may be moving toward a turning point, according to analysts at S&P Global Ratings. In a report distributed Thursday, the firm said residential property prices could reach a bottom in the third quarter of 2028. Prices in China’s largest cities, including Beijing and Shanghai, may begin to recover as soon as next year. The forecast represents a notable change from February, when S&P said the high volume of unsold homes meant that a property-market recovery remained out of reach.

Edward Chan, a credit analyst at S&P Global Ratings and author of the report, attributed the shift partly to changes in government policy. In August, Beijing announced new restrictions on developers’ ability to sell properties before construction is complete. A month later, Chinese Premier Li Qiang said the government would introduce measures to stabilize the real estate sector. Beijing subsequently launched a mortgage-rate subsidy for first-time buyers purchasing homes priced below 1.5 million yuan ($220,000) and measuring less than 120 square meters (1291.67 square feet).

These measures may affect both the supply of new housing and the timing of purchases. The restrictions on unfinished-property sales could make developers more cautious about taking on new projects, while the subsidy is intended to reduce borrowing costs for eligible first-time homebuyers. Chan told CNBC in a phone interview on Thursday that developers would be more careful when acquiring land and would likely buy less land and develop fewer projects. That could weigh on their revenue, he said, but it may also help address the oversupply that has weighed on China’s property market.

In Chan’s view, the continued reduction of supply is likely to be the main force supporting home prices over the next one to two years. Although China has already experienced a multi-year property slump, he described 2026 as the first year of genuine real estate inventory destocking. This distinction matters because a reduction in unsold homes can gradually improve the balance between available housing and buyer demand. If developers scale back land purchases and construction, fewer new units may add to the stock of properties waiting to be sold.

The scale of the excess supply has been substantial. In 2023, Nomura estimated that unfinished, pre-sold homes in China amounted to about 20 times the size of Country Garden as of the end of 2022. Country Garden was once the country’s largest non-state-owned developer by sales. The comparison illustrates why the market’s difficulties cannot be understood solely through current home prices: many projects had been sold before completion, leaving buyers dependent on developers finishing homes even as companies faced financial pressure.

For years, developers including Evergrande relied heavily on selling apartments before construction was finished. The practice helped fuel a debt-driven cycle of rapid growth, but it also left buyers exposed when developers ran into trouble. Homebuyers in one project in Tianjin, a city near Beijing, previously told CNBC that they had waited years for the units they purchased before completion. Those experiences have contributed to concerns about confidence in the sector, as well as the challenge of matching new construction with actual demand.

S&P’s latest analysis also compares China’s downturn with housing crises in Japan, the U.S. and Spain over recent decades. The report says China is pursuing two measures that have helped stabilize other markets: reducing supply and corporate deleveraging. S&P characterized China’s supply contraction as taking place “much earlier and with greater magnitude” than the contraction during Japan’s housing crisis from 1991 to 2014. The comparison is not a guarantee of a similar outcome, but it provides context for how policymakers and analysts are evaluating China’s adjustment.

Price declines offer another point of comparison. According to the S&P report, China’s residential prices have fallen by 22% since reaching a peak in 2021. Japan’s prices dropped by 67% after a much larger run-up, while the U.S. experienced a 26% decline in residential prices during the slump associated with the financial crisis. These figures describe different markets and periods, so they do not establish that China will follow the same path. They do, however, show that the scale and sequence of price adjustment vary considerably across housing downturns.

Policy support and broader economic developments may also be affecting demand. China’s mortgage subsidies could make home purchases more affordable for some buyers. S&P also pointed to wealth effects from the artificial-intelligence boom as a factor helping lift property demand. The extent to which these influences can support a durable recovery remains uncertain, particularly because improved affordability or rising asset wealth does not necessarily mean that households will make long-term commitments to buying homes.

Separate analysis from Guotai Junan International offered a more near-term view of conditions in major cities. On Thursday, its chief economist, Hao Zhou, published a report predicting that the fourth quarter of this year could bring the first increase in existing-home prices in large, or “tier-one,” cities since the 2021 to 2023 slump. Zhou said that since March, tier-one cities had been more likely than smaller cities to record flat or rising prices. He also noted that Shanghai’s year-on-year decline in existing-home prices had narrowed, while Beijing’s prices had stabilized and risen by 1.4% from a low in January.

Some city-level indicators have been stronger than the national picture. Hangzhou, home to DeepSeek and Alibaba, recorded a new high in its new-home sales index. Zhou said new-home prices there were only 14.2% below their peak and had fallen less than prices in most cities. Such variation highlights why analysts distinguish between large metropolitan markets and smaller urban areas: supply, local employment, population trends and buyer interest can differ substantially from one place to another.

Zhou described the next three months as a key window for judging whether the improvement in major-city housing markets can persist. He said that if Shanghai, Shenzhen and Guangzhou avoided a monthly decline through the November 2026 data, the rebound would have lasted longer than the 2024–25 episode. In his assessment, that would provide strong evidence of a bottom in tier-one cities and an important signal for the broader market. The qualification is significant: the proposed test depends on multiple cities maintaining prices over a defined period, rather than on a single month or isolated improvement.

Even with firmer indicators in some locations, the outlook for demand remains unsettled. Morgan Stanley equity analyst Stephen Cheung argued in a report Wednesday that the mortgage subsidy might bring forward purchases that households had already planned, rather than create substantial new demand. If buyers simply move planned transactions into an earlier period to take advantage of support, sales could rise temporarily without establishing a sustained increase in underlying interest.

Cheung cited data from Chinese research firm Bingshan showing that sales of existing homes in 25 cities increased by 50% from a year earlier during the Oct. 1 to 6 public holiday period. That compared with growth of 20% in September, indicating a significant pickup during the holiday period. The numbers are an encouraging sign for transaction activity, but they do not by themselves settle whether the increase reflects lasting confidence, policy-related timing, or both. Analysts will need to assess subsequent sales and prices to determine whether the improvement continues.

Overall, the emerging picture is mixed. Measures to restrict sales of unfinished properties and reduce construction may help ease oversupply, while mortgage support and stronger conditions in some large cities may encourage transactions. At the same time, the large stock of unsold and unfinished homes, the legacy of developer debt, and uncertainty about whether buyers are bringing purchases forward all remain important constraints. A possible bottom in prices is therefore not the same as a complete recovery in construction, sales, confidence or developer finances.

S&P’s central forecast places a possible national residential-price bottom in the third quarter of 2028, while its report sees prices in the largest cities potentially recovering as soon as next year. The gap between an early improvement in major markets and a later nationwide bottom reflects the uneven nature of China’s property sector. It also underscores why supply reduction, regional price trends and the durability of buyer demand will remain central to judging whether the market has entered a sustainable recovery.

Key Insights Table

Afterwards...

The next stage of China’s property-market adjustment will depend on whether reduced construction can steadily absorb excess inventory and whether buyers continue to return after temporary policy incentives fade. Price performance in the largest cities may offer an early signal, but the national market is diverse and could recover at different speeds across locations.

For now, the evidence supports a cautiously improving outlook rather than a confirmed, broad-based turnaround. Future assessments will need to distinguish lasting demand from purchases shifted forward, and genuine inventory reduction from short-term changes in sales. If supply continues to contract while prices stabilize across major cities, confidence in a durable bottom may strengthen; if not, the recovery could remain uneven and vulnerable to renewed weakness.