Standard & Poor’s says the decline in China’s real estate sector this year appears to be worse than expected

BEIJING — China’s real estate market is expected to decline more sharply than expected in 2025, extending the industry’s decline for a fifth straight year and delaying hopes for a turnaround in the market, Standard & Poor’s ratings agency said in a report issued late Thursday.

Analysts expect new home sales to decline 8% from last year to between 8.8 trillion yuan and 9 trillion yuan ($1.23 trillion to $1.26 trillion).

This is a much steeper decline than the 3% decline the major rating agency expected in May. At the time, analysts expected that the trade war and other external uncertainties would prompt China to provide stronger support for the real estate sector, Edward Chan, director of corporate ratings at S&P Global Ratings, told CNBC.

The main reason for the weak outlook is that “home buyer sentiment is still very fragile,” Chan said. “The government will therefore need to continue to support the sector and demand help in restoring home buyer confidence.”

In September 2024, Beijing called for efforts to… “Stop” the decline in real estate In a high-level meeting. But after some new measures last year, political momentum to increase support appeared to have slowed.

S&P noted that China’s five-year key lending rate – the benchmark for most mortgages – has fallen just 10 basis points so far this year, compared to a 60 basis point cut in 2024. This suggests Beijing is not easing policy as aggressively as before, despite the real estate slump.

In August, three of China’s largest cities eased purchase restrictions to allow buyers to own multiple properties, but the move mostly applies to units located in less desirable city suburbs, S&P noted.

“If demand can be stabilized first in higher-tier cities, especially in first-tier (larger) cities first, this will likely help make the demand recovery path more sustainable,” Chan said.

In past decades, homebuyers in China tended to purchase apartments before they were completed. But with developers facing financial difficulties, Construction delayedshook consumer confidence. This is what prompted Beijing last year to announce A “Whitelist” for financing approved incomplete projects.

As of August, the stock of completed but unsold housing had risen to 762 million square meters, up from 753 million square meters in December 2024, S&P said.

“The government has done a lot to reassure people (that getting their apartments) is not the problem now,” Chan said. “The issue is that overall demand for the nation as a whole looks weaker than we expected.”

Going forward, the government is expected to intervene, even if gradually, when market weakness appears.

August saw an easing of some restrictions on home purchases and a high-level recognition by Chinese Premier Li Qiang that… The real estate recession remained unresolvedWhich indicates the need for more support.

The following month, sales of China’s top 100 developers rose 0.4% year-on-year, Standard & Poor’s reported, citing industry data.

As developers strive to survive, “the end result may be a smaller market, but also a healthier and more resilient sector,” the report said.