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Analysts suggest the downturn is so significant that
only the state would be capable of absorbing the oversupply.
Beijing could purchase unsold apartments to create affordable housing, but such efforts have so far been sporadic and fragmented.
China’s real estate market, which previously accounted for more than a quarter of the economy, has shrunk to roughly half its size in just four years. The decline initially stemmed from a government crackdown on excessive developer debt, and consumer demand has yet to recover. Despite this, construction has continued, resulting in six consecutive years of accumulating completed but unsold homes.
The oversupply is expected to lead to a further 2-4% drop in prices this year, similar to the decline seen in 2025. S&P warns:
falling prices undermine buyer confidence, creating a self-reinforcing vicious cycle.
Of particular concern is that price declines accelerated in the largest cities during the final quarter of last year. Beijing, Guangzhou, and Shenzhen all recorded price drops of at least 3% in 2025, while Shanghai was the only major city to see prices rise, increasing by 5.7%.
The Reuters reported in January that rural regional banks in China are facing increasing difficulties: a significant portion of their foreclosed properties are failing to attract buyers even with discounts of 20-30%, further exacerbating the Chinese real estate crisis and posing a serious risk to the financial sector.
Recent home sales ultimately fell 12.6% last year, to 8.4 trillion yuan. Here’s less than half the peak of 18.2 trillion yuan recorded in 2021. If sales decline by 10 percentage points more this year and next, as per S&P’s base-case scenario, four of the ten rated Chinese developers could face downgrades. Meanwhile,
China Vanke, formerly a market leader, requested an extension on repayments for some of its debts last year.
Chinese authorities have not yet announced any significant new support package for the property sector, instead focusing on developing high-tech industries. However, according to the Rhodium Group, a U.S. Research institute, this sector is not large enough to offset the real estate crisis, causing the economy to increasingly rely on exports and making it
more vulnerable to trade tensions.
The cover image is an illustration. Source of cover image: Getty Images
This writing does not constitute investment advice or an investment recommendation. Detailed legal information
