China Is Waking Up from Its Property Nightmare

China’s property market is showing signs of recovery after years of decline, highlighted by a high-profile sale in Shanghai and improving inventory in tier-one cities. Economic projections remain positive, yet challenges persist, especially in smaller urban areas where the crisis lingers. Government interventions aim at boosting housing demand, but broader stability and recovery depend on continued support.

China appears to be emerging from a significant property crisis that has plagued its economy for several years. Speculation surrounding a potential recovery is taking shape in various contexts—from casual dinner conversations to high-level meetings. Despite ongoing tensions related to the trade war and tariff disputes, broad indicators suggest that China’s economic resilience may be on the upswing, particularly as the property market shows initial signs of recovery.

With private-sector growth projections still hovering around 4-5% for 2025, there are signs that one of the country’s most serious economic nightmares may finally be abating. A notable sale in Shanghai’s Changning district of a property for a staggering 270 million yuan (about 38 million USD) has garnered widespread attention, symbolizing a potential shift in market sentiment. Analysts interpret such sales as indicative of a recovering confidence in China’s vast but troubled real estate sector.

The impact of the property market’s downturn has been substantial, as it once accounted for approximately 25% of China’s GDP but now contributes merely 15% or less. This slump has led to a considerable dip in householder wealth, with the share of wealth tied up in real estate falling from 80% in 2021 to around 70% today. The collapse of numerous property developers has exacerbated the situation, leaving a web of unpaid debts and contributing to weak consumer confidence.

Still, for the first time since the crisis began, signs of a recovery are perceptible. Property sales by value in early 2025 went down less than 3% compared to the previous year, a stark contrast to the 17% decline recorded in 2024. According to ratings agency S&P Global, the downward trend in transactions is expected to ease but is still dependent on further government support moving forward.

A significant issue has been the surplus of unsold residential units—estimated at about 80 million last year. However, that problem seems to be receding, particularly in major cities. Data shows that inventories of unsold homes in key urban areas have dropped significantly, suggesting a less daunting overhang moving forward. For instance, in the tier-one cities, inventory levels have decreased from nearly 20 months of supply to around 12.5 months, nearing pre-crisis average levels.

Shanghai’s real estate market serves as an example of this slight revival, with month-on-month transaction rises observed since February. Luxury properties are increasingly in demand, and market experts indicate that prices for standard homes are likely to increase, albeit more slowly compared to pricier options.

Factors contributing to this stabilization include time and strategic government interventions. Authorities have tightened credit access for developers since mid-2020 to cool off the situation, and now they are encouraged to purchase unused land and boost housing demand via subsidies. A recent cut in mortgage rates is also helping spur activity, according to sources within the industry.

Despite these developments, challenges remain. Confidence remains shaky due to unresolved issues from the trade war, and recent data indicates ongoing price decline in many smaller cities. In Wenzhou, for example, price drops are significant, with locals pointing to deep discounts as a reflection of the continuing downturn.

While cities like Shanghai may be seeing some relief from the crisis, smaller locations might still face prolonged hardships. S&P predicts flat new-home prices in major urban centers this year, with slight increases expected next year, while smaller cities may see further declines. While signs indicate that China is moving beyond its property nightmare, officials need to ensure that recovery is widespread and not just limited to the luxury markets of affluent areas.

In conclusion, China’s property sector seems to be shifting towards recovery after enduring significant challenges over past years. Indicators such as high-value property sales and reduced inventory levels hint that a stabilization period could be underway, especially in major urban centers like Shanghai. Yet, the outlook varies between larger and smaller cities, as ongoing issues from the trade war and economic pressures linger. It remains critical for officials to foster a balanced recovery across all regions, ensuring that growth is not confined to just the most affluent areas.

Original Source: www.hindustantimes.com