China's real estate market is expected to stabilize in 2025

China's struggling real estate sector may not start turning around until the second half of next year — even with the latest stimulus measures, three research firms predicted this month.

After months of additional measures, Chinese President Xi Jinping in late September led a high-level meeting that pledged to “stop the decline in the real estate market.” Earlier this month, the Ministry of Finance took further measures aimed at stabilizing the real estate sector.

“We have finally reached an inflection point of the ongoing downward spiral in the housing market on the back of a comprehensive and coordinated easing package,” Goldman Sachs analysts said in an October 22 note titled “China Real Estate Outlook 2025: Bottom in Sight.” “.

“This time is different from previous partial mitigation measures,” the report said.

Analysts expect real estate prices in China to stabilize in late 2025, and to rise at a rate of 2% after two years. Real estate sales and new home construction are unlikely to stabilize until 2027, according to Goldman forecasts.

Standard & Poor's and Morgan Stanley also published reports this month predicting that China's real estate market will bottom out in the second half of 2025.

“If the government continues to prioritize developer financing support and inventory reduction, we believe property sales and prices could stabilize in the second half of 2025,” Edward Chan, director of S&P Global Ratings, and his team said in an October 17 note. They warned that it would take time for the policies to take effect.

Beijing explained that efforts to support the faltering real estate sector come second to its goal of promoting advanced manufacturing as a new engine of growth. But this is no easy feat, as real estate once represented more than a quarter of GDP, with its connection to household wealth and local government finances. Debt-laden developers in China are facing increasing difficulties in delivering pre-sold homes, which has dampened consumer sentiment.

Analysts are closely watching a parliamentary meeting next week for any details on fiscal spending on reducing housing stock.

Goldman's forecast assumes an additional fiscal spending of 8 trillion yuan ($1.12 trillion) from the government, which has not yet been announced.

“Without such stimulus, the housing market decline could drag on for another three years,” Goldman analysts warned. Such support would need to address developers' liquidity issues, reduce unsold housing stock and ensure delivery of previously sold but incomplete homes, they said.

Houses in China are usually sold before completion. This business model proved unsustainable after Beijing cracked down on developers' heavy reliance on debt for growth, and demand from home buyers declined as economic growth slowed.

Nomura estimated late last year that about 20 million previously sold homes remained unfinished. Last month, officials noted that about 4 million homes had been completed and delivered to buyers under this year's whitelist program, and pledged to accelerate financial support.

Back in June, even before the latest stimulus announcements, Morgan Stanley predicted that inventory depletion would lead to a “recovery in mortgage demand in late 2025 or 2026.”

Analysts expect that about 30% of unsold inventory will never be sold, requiring banks or other unidentified entities to bear the cost.

China's recent efforts to boost confidence have given the real estate market a boost. Property sales in 22 major cities fell by about 4% year-on-year in October, a much smaller contraction than the more than 25% decline in September, according to the China Index Academy, a real estate research firm.

However, the stabilization of the real estate market does not mean a widespread recovery. Analysts expect that any rebound in home sales and new construction will remain weak in the coming years.

Standard & Poor's expects real estate sales in China to fall to about 9 trillion yuan or less this year, before falling further to 8 trillion yuan in 2025 – less than half the sales level of 18 trillion yuan in 2021.

Analysts attribute the decline in sales to an increase in unsold housing stock, which continues to put pressure on developers who resort to lowering prices to attract buyers and reduce inventory.

Standard & Poor's said, citing data from China Real Estate Information, that real estate sales of the 100 largest developers in China shrank in September by 37.7% year-on-year, the largest decline since April this year. It wasn't a one-month downturn. The data showed that during the first nine months of the year, sales fell by 36.6% compared to the previous year.

The deterioration in sales has also affected developers' liquidity, leading to a “lack of confidence” and developers seeking a “cautious approach” towards land acquisition and starting new projects, according to S&P Global analysts.

The number of new construction projects fell 42% in 2023 from its peak in 2019, and fell another 23% year-on-year in the first eight months of 2024, according to an S&P Global analysis of official data from the National Bureau of Statistics.

Analysts remain cautious about the impact of China's real estate stimulus.

“In our view, the amount of support was insufficient and faced challenges in implementation to halt the current decline,” Goldman analysts said, warning that property prices could fall by another 20% to 25% if the policy fails.

In one of the few inventory measures announced so far, the People's Bank of China in May pledged 300 billion yuan in re-lending facilities to state-owned enterprises to purchase unsold completed homes and convert them into affordable housing.

“Although useful, they represent only a small percentage (4-6%) of total housing completions,” S&P said.

Morgan Stanley analysts said in their report on Sunday that recent meetings with banks in Zhejiang, one of China's better-off provinces, indicated that it had not yet participated in the new government program to provide loans to purchase housing stock.