CHINA’S ECONOMY has been through a stress test in the past six months with the trade war shredding nerves. The tensions over tariffs are not over yet. On May 29th Scott Bessent, the Treasury secretary, said that ongoing talks had “stalled” and President Donald Trump complained that China “had totally violated” the preliminary agreement to reduce duties reached between the two sides in Geneva on May 12th. Yet even as the trade war staggers on, two things are proving reassuring for China. One is that so far the economy has been resilient. Private-sector growth estimates for 2025 remain in the 4-5% range. The other is that one of China’s biggest economic nightmares seems to be ending: the savage property crunch.
To get a glimpse of that, consider a gated home in Shanghai’s Changning district. It has an air of traditional German architecture and a large front garden, a feature of the city’s most ritzy neighbourhoods. But what really stands out is the price. On May 27th the property sold for a stonking 270m yuan ($38m), creating a sensation in the Chinese press. At 500,000 yuan per square metre, it is one of the priciest home auctions in recent memory. That the wealthy are prepared to pony up such an exorbitant price is being interpreted as a sign that China’s huge and interminable property crisis might finally be ending.
Speculation about a turnaround has been building over dinner tables, in boardrooms and at state-planning symposia. The excitement is hardly surprising. Property, broadly defined, contributed about 25% of GDP on the eve of its crash in 2020. It now represents 15% or less, showing how the slump has been a huge drag on GDP growth. The depressive impact of falling prices on ordinary folk is hard to overstate. In 2021 80% of household wealth was tied up in real estate; that figure has fallen to 70%. Hundreds of developers have gone bust, leaving a tangle of unpaid bills. The dampening of confidence helps explain sluggish consumer demand.
But while the market is still falling, for the first time since the start of the crisis, you can make a decent case that the end is in sight. In the first four months of 2025 sales of new homes by value fell by less than 3% compared with the year before. In 2024 the decline was 17%. Transactions will continue to drop only modestly for the rest of the year, reckon analysts at S&P Global, a rating agency.
One of the biggest problems was that millions of flats were built but never sold. Last year as many as 80m stood dormant. Now in the “tier-one” cities of Beijing, Shanghai, Guangzhou and Shenzhen, that problem is easing. At the end of January the inventory held by developers in those cities would have taken around 12 and a half months to shift at current sales rates, according to CRIC, a property data service. That is down from nearly 20 months in July 2024, and not far from the average of ten months in 2016-19 across the country’s 100 largest cities. In other words, the overhang is starting to look less terrifying.
Shanghai’s renaissance illustrates the trend. Transactions rose slightly each month from February to April compared with the year before, making it one of the few cities where prices have risen year on year for months in a row. It still has controls over who can buy properties and how many. But luxury homes are starting to be snapped up quickly, says Ms Fang, an estate agent. The prices of standard properties will probably continue to grow this year, she says, but the most expensive homes are increasing in value even faster.
What explains the bottoming out of the market? Partly, just the passage of time. The average housing crash takes four years to play out, according to a study by the IMF of house-price crashes around the world between 1970 and 2003. Officials in Beijing started deflating the bubble by tightening developers’ access to credit in mid-2020 and investors started to panic about the solvency of the monster developers at the end of that year. But as well as time, the government is more determined than ever to put an end to the downturn. Local governments have been encouraged to buy unused land and excess housing with proceeds from special bonds. Some are handing out subsidies for buying homes. A plan to renovate shantytowns could create demand for 1m homes. The central bank cut interest rates in May, reducing mortgage rates for new home purchases. This has boosted property sales activity, says Guo Shan of Hutong Research, a Beijing-based consulting firm.
There are still dangers. The trade war is a drag on confidence. Home prices across 70 cities surveyed by the National Bureau of Statistics declined by about 2% in April from a month earlier. Sales of new homes and the starting and completion of housing projects all fell month on month. Fewer cities in April notched month-on-month price increases compared with the month before. Things are not getting much worse but they will probably not get better without more government support, says Larry Hu of Macquarie, an investment bank.
In Wenzhou, a manufacturing city on China’s southeastern coast, price declines are still sharp. Locals say the trade war with America is shaking confidence. Mr Zhou, a restaurant owner, says the official data do not capture huge discounts of more than 50% on some new homes in overbuilt areas. He blames a manufacturing downturn, and Mr Trump’s trade war.
In all probability the crisis is over in big rich cities, such as Shanghai, but may last longer in smaller cities, such as Wenzhou. New-home prices in first-tier cities will be flat this year and increase by 1% next year, according to S&P. But in third-tier cities and below they will fall by 4% this year and 2% next. Small cities are full of unwanted homes. China is escaping its property nightmare. Even so, the Communist Party must ensure it is not only big-ticket mansions in Shanghai that look appealing.
