MNI: China’s Property Market To Continue Decline Over 2026

China’s property market is set to continue declining in 2026, with developers facing moderate but persistent default risks despite improved January sales and eased “three red lines” debt-metric rules, advisors and analysts told MNI.

Outside core areas in major cities, the market is still unlikely to bottom this year, said Xie Yifeng, dean of the China Urban Real Estate Research Institute, noting recent optimism, triggered by second-hand housing market improvements and reports that authorities had removed the 2020 leverage-restrictive “three-red-lines” policy, is not sufficient to confirm a recovery. 

In addition to recent positive signs of more second-hand home sales and less listings in tier-one and stronger tier-two cities, a true market floor would require faster inventory depletion that reverses oversupply, sustained sales and price gains over nine-12 months, and improved developer performance with reduced credit and delivery risks, Xie said.  

The January increase in second-hand transaction volumes, marked by year-on-year gains of over 20% in Beijing and Shanghai, was partly driven by families with young children purchasing earlier than usual to secure access to better schools ahead of a later Spring Festival, alongside recent reductions in value-added tax on such deals, he said.

A sustainable recovery will require continued policy support, including measures to lower homebuying costs and expand the use of the Housing Provident Fund, Xie added. (See MNI: China To Assess Housing Stimulus On Q1 Performance)

Whether the rebound in second-hand sales will translate into stronger new-home sales remains uncertain amid persistent weak confidence, said Yan Yuejin, vice president at the E-House China Research and Development Institute.

Overall, the sector outlook remains fragile, with no clear signs of a bottom, said Lulu Shi, director of Asia-Pacific corporate ratings at Fitch Ratings. She expects the value of new-home sales to fall 7-8% to below CNY7 trillion in 2026, following a 14% year-on-year decline last year. “Homebuyer confidence appears less influenced by individual developers’ financial health and more shaped by structural headwinds, including slow income growth and high household leverage,” she said.

RED LINES

Yan doubted the removal of the “three-red-lines” policy would represent a major shift in developers’ financing environment, as authorities have not meaningfully enforced the framework since late 2021. He added authorities could direct additional funding support toward local governments purchasing second-hand homes for affordable housing, following Shanghai’s recent initiative.

The Bloomberg China Real Estate Owners and Developers Valuation Peers Index rose 8.35% in January, marking its strongest monthly gain since February 2025. But developers remain highly dependent on sales proceeds for cash flow, Xie said, noting that even companies with resolved debt issues could face renewed default risks if home sales fail to recover meaningfully.

Risky developers are still required to report relevant debt metrics and the exemption from the three red lines does not signal looser financing conditions, Xie continued, adding that banks’ risk appetite remains low and approvals for new loans are tightly controlled. 

Shi added that bank lending will likely continue prioritising the completion of unfinished projects, supporting new developments that meet upgrade demand and advancing urban renewal initiatives.

WHITE LIST

Debt-extension policies for whitelisted housing projects apply only to developers meeting strict requirements for high-quality collateral and stable cash flow, Xie said. While such extensions may temporarily smooth non-performing loan data, they do not eliminate underlying risks.

The majority of Fitch-rated Chinese homebuilders carry stable outlooks despite the agency’s negative sector view, largely because most rated issuers are state-owned enterprises with strong financial flexibility. However, private developers will remain constrained by limited access to land replenishment, subdued buyer confidence and restricted funding channels, Shi said.

Developers will still face significant repayment pressure in 2026 and 2027. According to China Lianhe Credit Rating, outstanding domestic corporate bonds totalled CNY1.4 trillion as of end-December. As of end-November, 137 issuers remained active in the market, among which 23 had extended bond maturities and 33 had defaulted.