A real estate project under construction in Hangzhou, Zhejiang Province, China, on September 15, 2026.
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BEIJING – The end is in sight for a years-long slump in China’s property market, S&P Global Ratings analysts said in a report released Thursday.
Residential real estate prices may decline in the third quarter of 2028, the report said. He added that prices in China’s biggest cities, such as Beijing and Shanghai, will recover as soon as next year.
This is a big change from February, when S&P said the high level of unsold housing kept “property market recovery out of reach.”
What has changed since then are two government policies, according to report author Edward Chan, credit analyst at S&P Global Ratings.
In August, Beijing announced new restrictions on developers’ ability to sell unfinished properties. A month later, Chinese Premier Li Qiang said the government would implement policies to stabilize the real estate sector. Beijing then launched subsidized mortgage rates for first-time home buyers of less than 1.5 million yuan ($220,000) and smaller than 120 square meters (1291.67 square feet).
“Developers will now be very careful to buy land, so they will buy less land and develop new projects that are less developed,” Chan said in a phone interview with CNBC on Thursday. “This may not be good for revenue but it will help China’s oversupplied property market.”
“Going forward in the next one to two years, the main factor to help stabilize China’s housing prices is the continued reduction in supply,” he said, noting that despite years of property declines, 2026 is the first year of real estate inventory destocking.
The challenge of oversupply is so great that by 2023, Nomura estimates the size of uncompleted homes, which have been sold in China to be about 20 times the size of Country Garden, by the end of 2022. Country Garden used to be the largest non-state developer in China by sales.
Chinese property developers such as Evergrande have long relied on pre-completion apartment sales, fueling a debt-fuelled cycle. A homebuyer of one project in the city of Tianjin near Beijing previously told CNBC that he waited years for the unit he bought before it was completed.
Compare that to Japan
The latest S&P forecast also compares the depth of China’s real estate slump so far with housing crises in Japan, the US and Spain over the past decade.
Of the various factors that help stabilize each of these market slumps, China is working on two: supply reduction and corporate deleveraging, the report said. “China’s supply contraction occurred earlier and was larger” than Japan’s housing crisis from 1991 to 2014, S&P said.
On the price front, China’s home prices have fallen 22% since their 2021 peak, compared with a 67% drop in Japan after higher prices, the S&P report said.
By comparison, say the US real estate slump in the financial crisis saw a 26% decline in home prices.
China’s efforts to subsidize mortgages along with the wealth effects of the artificial intelligence boom are also helping to boost demand for property.
Also on Thursday, Guotai Junan International’s Chief Economist Hao Zhou published a report predicting the fourth quarter of this year could see the first growth in existing house prices for large cities, or “level one”, since the recession from 2021 to 2023.
He noted that since March, Tier one cities are more likely than small cities to record flat or rising prices. In particular, he said Shanghai’s house prices have moderated their annual decline, while those in Beijing have stabilized, rising 1.4% from their lows in January.
Hangzhou, home to DeepSeek and Alibabastand out with a record high in the index of new home sales, while prices for new homes are only 14.2% below the peak and have fallen less than in most cities, Zhou said.
“The next three months are a key window,” he said. “If Shanghai, Shenzhen and Guangzhou avoid monthly declines through November 2026 data, this rebound will extend beyond the 2024-25 episode. In our view, this will be strong evidence of a Tier-1 bottom and an important signal for the broader market.”
However, there is still no certainty that demand will remain sustainable in the long term.
Mortgage subsidies will bring about planned purchases rather than creating a lot of new demand, Morgan Stanley equity analyst Stephen Cheung said in a report on Wednesday.
He cited data from Chinese research firm Bingshan that showed existing home sales in 25 cities rose 50% from a year ago during the Oct. 1 to 6 public holiday period – a significant jump from September’s 20% growth.