Calls for steps to restore stability in real estate sector

As China's real estate sector tries to gain a solid footing, experts have called for swifter and stronger steps to restore sentiment and stability, such as easing purchase restrictions in major cities, exercising deeper cuts on mortgage rates and expanding government-led acquisitions of unsold housing for conversion into affordable homes.

Their comments follow a tone-setting meeting, where policymakers decided priorities for China's economic work in 2026, placing high premiums on stabilizing the real estate market.

The annual Central Economic Work Conference, held in Beijing last week, called for city-specific policies to control new housing supply and clear inventory, and encouraged the acquisition of existing residential properties to use them as government-subsidized housing.

"A persistent property market downturn does more than impact developers and local government revenue, it directly affects the economic decisions of millions of households," said Robin Xing, chief China economist at Morgan Stanley.

Xing said residential property has constituted a significant portion of family wealth in China. When housing prices decline, homeowners feel less wealthy. This perception erodes financial confidence, leading to increased precautionary savings and a marked reluctance to spend.

As policymakers set an explicit target for "a notable increase in household consumption as a share of GDP" in the recommendations for China's next five-year blueprint, more forceful policies need to be urgently unveiled to halt the downward trend in the property market and mitigate its negative wealth effect on household consumption.

Wang Qing, chief macroeconomic analyst at Golden Credit Rating International, said that a further relaxation of home purchase restrictions in the core districts of Beijing and Shanghai, as well as Shenzhen in Guangdong province, could be put in place.

"This could serve as a powerful signal, demonstrating the government's commitment to stabilizing the property sector and bolstering overall market confidence," Wang said.

The three cities have eased some home purchase restrictions this year, lifting curbs in suburban areas, allowing more homes for families and removing limits for nonlocals in outer districts, though core areas still retain some purchase restrictions.

Wang noted the property markets in these metropolitan hubs function as critical barometers for the entire country. Their stabilization is expected to create a positive ripple effect, helping to anchor expectations and guide sentiment in smaller cities currently facing greater market pressures.

"More importantly, measures such as targeted cuts to existing mortgage rates and fiscal interest subsidies should be implemented to lower the burden of home loans for residents," Wang said. "This is a key move to activate market demand and turn around property market expectations at the current stage."

Wang also noted the potential of "substantial tax and fee reductions in property transaction processes" as another lever to stimulate market activity. He emphasized that there remains "sufficient policy space" in these areas.

Meanwhile, as China's urbanization continues its steady march forward, analysts point to significant growth potential and a corresponding need for structured housing solutions.

Yuan Haixia, dean of the research institute at China Chengxin International Credit Rating, said that with the urbanization rate currently about 15 percentage points below the 80 percent benchmark seen in advanced economies, the ongoing population shift from rural to urban areas is set to generate sustained, long-term demand in the property sector.

This demographic transition has given rise to a population of nearly 300 million "new citizens" — migrants and recent urban residents, Yuan said.

"The scale of need is considerable. While encouraging homeownership through the commercial market remains vital, it's of equal importance to provide about 100 million units of government-subsidized housing for this crucial demographic."

To this end, local governments should move faster to purchase unsold inventory from developers for conversion into public housing, Yuan added.

Experts stress that the acquisition of this housing stock must be carefully calibrated to align with demographic shifts — specifically, ongoing urbanization and a rapidly aging population.

In major metropolitan areas facing sustained population inflow, a priority should be placed on converting acquired units into affordable rental housing for young urban migrants, with an easing of application criteria, said Yan Yuejin, deputy head of Shanghai-based E-House China R&D Institute.

Meanwhile, a portion of the State-procured housing could be adaptively redesigned into age-friendly apartments or allocated for senior living communities, Yan added.