China Home Prices Fall Again, But at Slightly Slower Pace: Signs of Stabilization or False Dawn?

The National Bureau of Statistics (NBS) reported in early 2025 that China’s new home prices were flat in March compared to February, marking the first monthly stabilization since the market’s downturn began in 2021. While annual declines widened to 4.5%, the monthly data hinted at a potential turning point. Yet, the uneven regional recovery and lingering debt risks in the property sector leave investors questioning whether this is a genuine bottoming out or a fleeting reprieve.

Policy Measures: A Patchwork of Support

The Ministry of Housing and Urban-Rural Development (MOHURD) has deployed a mix of demand- and supply-side measures to stabilize the sector. These include:
- Easing credit conditions: Lower mortgage rates, reduced down payments, and relaxed purchase restrictions in second- and third-tier cities.
- Affordable housing expansion: Plans to subsidize 1 million urban renewal units and shift toward completed-home sales to rebuild buyer trust.
- Credit support: Over CNY 4 trillion in funding for stalled projects and subsidies for developers to repurpose idle land.

These policies reflect a strategic shift from blanket stimulus to targeted interventions. However, analysts note that the absence of new nationwide measures—such as tax cuts or direct subsidies to homebuyers—limits their impact.

Regional Divide: First-Tier Cities Lead, Smaller Cities Lag

The NBS data underscores a stark regional divide. In March 2025:
- First-tier cities (Beijing, Shanghai, Guangzhou, Shenzhen) saw month-on-month price increases, driven by pent-up demand and stronger economic fundamentals.
- Second- and third-tier cities recorded narrowed declines, but prices remain under pressure due to oversupply and weaker local economies.

This divergence mirrors broader urbanization trends, where high-growth cities attract talent and capital, while smaller cities grapple with depopulation and industrial decline. For investors, this suggests opportunities in first-tier markets but risks in secondary cities reliant on speculative demand.

Broader Economic Context: Housing’s Lingering Shadow

While China’s GDP grew 5.4% year-on-year in Q1 2025, the property sector’s drag on growth remains evident. Fixed-asset investment—a key barometer of construction activity—rose just 4.2%, with real estate investment down 5.8%. The sector’s woes also spill into related industries: cement production and steel consumption remain subdued.

The MOHURD’s push for urban renewal and affordable housing aims to address these imbalances by redirecting investment toward public infrastructure rather than speculative development. However, execution risks loom. Local governments, already burdened by debt, may struggle to fund subsidies and land purchases without central support.

Investor Considerations: Picking Winners and Timing the Cycle

For investors, the path forward is fraught with uncertainty but offers strategic opportunities:
1. State-owned developers: Firms like China Overseas Land & Investment (0688.HK) and China Resources Land (1109.HK) are favored due to their strong balance sheets and alignment with policy goals.
2. Urban renewal plays: Companies involved in shantytown redevelopment, such as China Vanke (2202.HK), may benefit from government subsidies.
3. Bond markets: Developer bonds and real estate stocks (e.g., Evergrande’s restructuring plans) carry high risk but could offer outsized returns if defaults subside.

Risks Ahead: Debt, Confidence, and Global Headwinds

The sector’s recovery hinges on three factors:
- Debt resolution: Over CNY 2 trillion in unfinished projects must be completed to rebuild buyer confidence.
- Consumer sentiment: Household savings rates remain elevated, signaling caution amid weak income growth.
- Trade tensions: U.S.-China friction could dampen export-driven growth, further stressing local economies.

Conclusion: Fragile Stabilization, Not a Boom

China’s housing market is not yet out of the woods. The March 2025 stabilization reflects policy success in slowing declines but not reversing them. First-tier cities offer pockets of resilience, while smaller cities face prolonged pain. Investors should prioritize quality over quantity, favoring state-backed firms and infrastructure-linked assets.

The MOHURD’s reforms—such as ending pre-sales and expanding affordable housing—signal a long-term shift toward a sustainable model. Yet, without a pickup in wage growth or a resolution to debt overhang, this stabilization may prove fleeting. For now, the data suggests a fragile bottom, not a rebound—a cautious bet for those willing to ride the volatility.