MNI: China's Real Estate To Stabilise Over Next Five Years

China’s property market is expected to stabilise over the next Five-Year Plan period, with residential prices in major cities bottoming out and rebounding as policy measures help rebalance supply and demand, advisors and analysts told MNI, noting the sector’s drag on overall economic growth is also likely to ease.

Property investment is projected to decline by an average of 4.5% per year over the 15th Five-Year Plan period (2026-2030), potentially shaving around 0.25 percentage points off annual GDP growth, said Lian Ping, director of the China Chief Economist Forum, whose calculation assumes overall economic growth of 4.5%. This would mark a significant improvement from the 0.9-point average annual drag seen during the previous plan period, following a 13.9% y/y fall in the first nine months, Lian added.

However, the persistent weakness will likely continue to weigh on home-related consumption and local government investment, given the ongoing contraction in land sales revenue, he said. Prices of new and second-hand homes are expected to decline by an average of 1% and 2% annually, narrowing by 1.5 and 2.5 pp respectively from the previous period, as sluggish sales keep pressure on prices.

Annual demand for urban residential buildings will fall to around 600 million square metres over the next five years, roughly 25% below the current average of 800 million square metres, according to Lian. Still, he expects new home prices in major cities to stabilise within two-three years, supported by improved housing quality to meet upgrade demand, reduced inventory and rising land prices. (See MNI: China House Prices To Bottom In Key Cities - Advisors)

Nationwide housing inventory could drop to around 450 million square metres by the end of 2030 – a cumulative reduction of 40% – bringing overall supply and demand closer to balance, he said.

NEW DEVELOPMENT MODEL

The recent Central Committee proposal on formulating the 15th Five-Year Plan, released last week, underscored the need for high-quality development in the real-estate sector, said Li Yujia, chief research fellow at the Guangdong Urban & Rural Planning and Design Institute.

The plan indicates a shift from the traditional model of project development, sales and financing toward a closed-loop fund management system ensuring project delivery and promoting sales of completed housing, Li said. 

Yan Yuejin, vice president of the E-House China Research and Development Institute, said the new model will likely tighten oversight of developers’ land acquisitions and financing, as well as strengthen supervision of pre-sale proceeds. But the shift to ready-built housing sales will be gradual, he cautioned, given the large capital needs such projects impose on developers.

POSSIBLE EASING

Although the proposal called for removing unreasonable restrictions on consumption in sectors such as autos and housing, Yan said the lifting of remaining purchase curbs in core areas of first-tier cities like Beijing, Shanghai and Shenzhen may have limited impact on stimulating new demand while potentially heightening speculation.

He said the proposal likely signals efforts to clear market obstacles and facilitate smoother circulation, such as easing restrictions on cross-regional use of housing provident funds. Li noted that eligibility requirements for public rental housing remain too strict, while talent-attraction housing policies still favour government employees. 

Xie Yifeng, dean of the China Urban Real Estate Research Institute, said he expected remaining curbs on home purchases, sales, mortgages and prices to be phased out gradually, particularly in first- and second-tier cities.

Lian urged authorities to allocate more land and funds to large cities to boost supply capacity and increase fiscal and tax incentives for home purchases. With mortgage rates already near record lows, he said further significant rate cuts are constrained by banks’ narrowing net interest margins. He proposed lowering deed and stamp duties for first-time buyers and reducing value-added and income taxes on second-hand housing transactions to stimulate market activity. Allowing tax deductions for home renovation and decoration within a year of purchase could also help unlock latent demand, he said.