China’s real estate sector faces a bleak outlook as analysts predict the ongoing crisis will worsen before it improves, potentially leading to another difficult year for property stocks. Despite a modest rebound in share prices, the slump in the country’s housing market shows little sign of recovery, with economists forecasting a continued decline in both home prices and sales throughout 2025.
The sector, which has been struggling for years, has seen a sharp drop in buyer confidence, falling property prices, and the completion of unfinished housing projects, leaving millions of homes in limbo. While the market saw a temporary uptick in September due to stimulus measures, this rebound is already showing signs of losing momentum. As of December 23, a Bloomberg index of Chinese developers was up 2.5% for the year, after four consecutive years of losses. However, experts remain skeptical about the sustainability of this rally.
Morgan Stanley analysts predict a 12% drop in sales for 2025, with home prices expected to fall by high single-digit percentages. Fitch Ratings also forecasts a 5% decrease in property prices next year, alongside a 10% decline in new-home sales. The market is likely to face prolonged pressure, with little immediate prospect for a substantial recovery.
Government Connections Key to Investment Strategy
In light of the challenges facing the broader sector, analysts recommend focusing on companies with strong ties to the Chinese government. Among the top picks are China Overseas Land & Investment Ltd. and China Resources Land Ltd., which have demonstrated more resilience than their private-sector counterparts.
“We see room for valuation upside in large, state-owned developers,” said Jeff Zhang, an analyst at Morningstar. Zhang also noted that home prices could stabilize in the latter half of 2025.
Morgan Stanley further predicts that consolidation within the sector will intensify next year, with privately owned developers prioritizing project completion and debt reduction. This shift will likely benefit leading state-owned developers, who are expected to capture more market share as weaker players exit the market.
Sector Faces Growing Risks
Despite this potential for consolidation, the real estate sector remains a major problem for China’s economy, with signs of mounting risks. The country’s financial regulator has recently asked insurers to disclose their exposure to China Vanke, the nation’s fourth-largest property developer, amid concerns about the risk of default. Additionally, New World Development, a Hong Kong-based company with significant exposure to the mainland, has requested that lenders delay some of its debt maturities. In another sign of distress, Parkview Group is actively seeking buyers for a prominent Beijing shopping mall.
At the Central Economic Work Conference, Beijing pledged to intensify its support for the market, though few concrete details were provided. Local governments in cities like Shanghai, Beijing, and Shenzhen have also implemented measures to ease home purchase restrictions in an attempt to stimulate the market.
However, the patchwork nature of these efforts has had only limited success, with the stock market experiencing brief rallies that have not translated into lasting improvements. Some analysts caution that while additional policy support could lead to short-term rebounds in property stocks, the sector’s long-term challenges are likely to persist. Bloomberg Intelligence’s Kristy Hung emphasized that weak fundamentals could continue to weigh on valuations, preventing any sustainable recovery in the market.
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