Has China’s property market reached the bottom?

China’s leadership has moved aggressively in recent weeks to support the world’s second largest economy, in part by stabilizing the housing market. Policymakers’ efforts to put a floor under property valuations may mark a turning point, according to Goldman Sachs Research.

“We are finally at an inflection point of the ongoing downward spiral in the housing market,” writes Yi Wang, who leads the China real estate team in Goldman Sachs Research. “This time is different from the previous piecemeal easing measures, in our view.”

Some $1 trillion of additional fiscal stimulus could be injected to help stabilize the housing market in the coming years, according to Goldman Sachs Research. The scale of the problem is huge: Our researchers estimate that China’s unsold inventory of housing would amount to RMB 93 trillion ($13 trillion) if it were fully built. By comparison, there will be an estimated total of about RMB 9 trillion in property sales this year.

The housing market is still in a precarious position, and much depends on the government’s follow through on support. Without intervention, Goldman Sachs Research estimates that property values may be at risk of falling by another 20% or 25%, which would drop them to about half of the peak in prices. But the government moves are positive nonetheless, and our researchers now estimate that property prices may stabilize by late 2025.

“Incremental government implementation of housing destocking will provide much better visibility for the housing market to stabilize in the coming years,” Wang writes.

What is the outlook for China’s property market?

Up to this point, government measures to heal the property market have fallen short, according to Goldman Sachs Research. It estimates that the supply of saleable housing inventory will be equal to more than two years of demand, as of the end of 2024.

Previously, the central bank had come up with measures including RMB 300 billion in lending support for state owned enterprises to buy completed but unsold housing inventory. Another RMB 4 trillion in credit was targeted to boost project completions. This has been insufficient, and there have been issues with the execution of these programs. Without additional stimulus, Wang estimates that the housing downturn could last another three years.

Now, however, there are indications that the government will follow through with enough additional fiscal stimulus to address the real estate market breakdown in the coming years.

With around RMB 8 trillion in stimulus coming, Goldman Sachs Research expects there will be resources to reduce the saleable inventory in the primary market while also helping to clear the construction backlog and restructure debt. This amount of stimulus would also address developers’ presold but uncompleted housing units. This will be key to “boost confidence among market participants,” the team writes.

There are still risks for China’s property market

With several previous efforts to boost China’s economy having briefly raised optimism and then fallen short of expectations, Goldman Sachs Research says it will be important to monitor the level of follow-through of government stimulus measures.

It will also be critical to identify signs of a recovery in the average selling price for properties in China’s largest and most prosperous cities, where demand may find support first, Wang writes. A rebound in these places could “help boost confidence among market participants for a broader market recovery going forward,” she writes. 

Goldman Sachs Research also cautions, however, there’s no guarantee that these efforts will succeed. For example, our researchers note that there are similarities between China and Japan during its property downturn. Their case study of Tokyo real estate in 1992-93 suggests that negative demographic changes, a tough macroeconomic backdrop, and deflationary expectations can take the wind out of a property price rebound. 

 

This article is being provided for educational purposes only. The information contained in this article does not constitute a recommendation from any Goldman Sachs entity to the recipient, and Goldman Sachs is not providing any financial, economic, legal, investment, accounting, or tax advice through this article or to its recipient. Neither Goldman Sachs nor any of its affiliates makes any representation or warranty, express or implied, as to the accuracy or completeness of the statements or any information contained in this article and any liability therefore (including in respect of direct, indirect, or consequential loss or damage) is expressly disclaimed.