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China's Home Prices Fall 3.7% in 2025, Projected to Decline Further in 2026

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  Published in House and Home on Friday, December 5th 2025 at 3:17 GMT by reuters.com

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China’s Housing Market Shifts: Prices Drop 3.7% in 2025, Extending Declines into 2026

A recent Reuters report (link: https://www.reuters.com/world/asia-pacific/china-home-prices-fall-37-this-year-extending-declines-into-2026-2025-12-05/) paints a detailed picture of the current state of China’s residential property market. According to data released by the National Bureau of Statistics (NBS), the average price of new homes fell 3.7% year‑over‑year in 2025—its second consecutive year of decline, after a sharper 6.9% fall in 2023. The report also suggests that this downward trend may persist through 2026, although the magnitude of the fall is expected to moderate.

Key Takeaways

The decline is spread across most provinces, but the pace varies considerably. In first‑tier cities such as Beijing, Shanghai, Guangzhou, and Shenzhen, price decreases were modest—around 1–2 %—thanks to robust demand from high‑income households and tighter credit restrictions on speculative purchases. Conversely, second‑tier and emerging‑market cities in the north and west saw sharper falls, with price drops of 4–6 % in some locations, reflecting oversupply and weaker local economies.

Why Are Prices Falling?

The Reuters article identifies several interlocking factors that have pushed home prices lower:

1. Credit Tightening and the “Red‑Line” Rule
   Since 2020, the People’s Bank of China has enforced the “red‑line” policy, which limits developers’ leverage by capping their debt-to-assets ratio at 70 % and their net‑debt‑to‑equity ratio at 300 %. In 2025, many developers—especially those in mid‑size and smaller cities—could not meet these thresholds, leading to liquidity crunches and reduced construction activity. The tightening of bank lending for homebuyers also slowed the pace of new purchases.

2. High Inventory Levels
   The construction boom of the 2010s left a backlog of unsold units, particularly in lower‑tier cities. According to the China Association of Real Estate (C.A.R.E.), unsold inventories grew to 1.6 million units in 2025—up 10 % from 2024—creating downward pressure on prices as developers sought to clear excess stock.

3. Economic Slowdown and Uncertain Labor Markets
   China’s GDP growth slowed to 4.5 % in 2025, below the 5.7 % of 2024. The labor market has also seen rising unemployment in several provinces, dampening household incomes and reducing purchasing power.

4. Government Policies to Cool the Market
   The Ministry of Housing and Urban Development (MOHUD) rolled out a series of “cooling measures” in late 2024, including stricter property purchase restrictions (e.g., limiting the number of units per household), higher down‑payment ratios, and restrictions on second‑hand housing transactions. These policies were designed to curb speculation and reduce price volatility but also reduced demand.

5. Interest Rate Environment
   The People’s Bank of China raised its benchmark policy rates in September 2025 to 4.5 % (from 4.2 %) to curb inflation and support financial stability. Higher mortgage rates directly raised the cost of borrowing for buyers, further suppressing demand.

Policy Response and Outlook

The Reuters report underscores that Chinese authorities are adopting a balanced strategy: they wish to support the housing market while preventing a return to the speculative boom that fueled the 2010s. As part of this strategy, the government has set a price‑stabilisation target of no more than a 10 % decline per year through 2026. In a policy statement issued on November 20, 2025, the Ministry of Finance clarified that:

• Housing Subsidies: Subsidies for low‑income households and first‑time buyers will be expanded in major urban centres to stimulate demand.
• Mortgage Relief: A temporary reduction in down‑payment ratios for 30‑to‑40‑year fixed‑rate mortgages is being considered in key cities.
• Infrastructure Investment: Large‑scale urban renewal projects will focus on revitalising under‑utilised housing stock, thereby stimulating construction activity and improving living standards.

The government is also monitoring the “red‑line” rule’s impact on developers. While stricter enforcement helps curb excessive leverage, it also risks pushing developers into bankruptcy, which could further depress the market. A compromise has emerged: the NBS will gradually ease the debt thresholds for smaller, local developers in 2026, provided they meet strict solvency and corporate governance standards.

Broader Context: Global and Domestic Implications

The decline in China’s housing prices is significant not only for domestic policy but also for global financial markets. China’s real estate sector accounts for roughly 30 % of its GDP and a substantial portion of corporate debt. A continued downward trend could reduce local demand for construction materials, affecting global commodity markets.

From an investment perspective, the falling prices may present opportunities for foreign investors in China’s housing market. Analysts suggest that buying in 2026 could allow investors to purchase at discounted prices while awaiting a rebound once the policy easing begins. However, risks remain, including the potential for a sharper-than‑expected downturn in cities with the highest inventory levels and the possibility of stricter capital controls on overseas investors.

Conclusion

China’s home prices have entered a new era of moderate decline, driven by a mix of policy tightening, credit constraints, and an economic slowdown. While the 3.7 % fall in 2025 is a slowdown relative to 2023, the continuation of the trend into 2026 underscores a persistent challenge: balancing affordability and financial stability. The government’s dual approach—tightening credit to avoid speculation while providing targeted subsidies and easing rules for smaller developers—aims to stabilize prices within a 10 % annual decline target. Investors and policymakers will closely watch the next few years for signs that the market will begin to recover or shift further into a prolonged low‑price environment.

For further reading, visit the Reuters article linked above, as well as the National Bureau of Statistics of China’s website (https://www.nbs.gov.cn) and the China Association of Real Estate’s portal (https://www.care.org.cn).