China's Housing Market Stabilization and Fiscal Policy Support: Strategic Asset Allocation Amid PBOC-Led Stimulus

The Chinese government's 2025 stimulus measures, spearheaded by the People's Bank of China (PBOC), have introduced a multifaceted approach to stabilize the real estate market and revitalize the construction sector. These efforts include a 50-basis-point cut in the Reserve Requirement Ratio (RRR), unlocking 1.2 trillion yuan for lending, and reducing interest rates on medium-term and one-year loans to lower borrowing costsStrong policy support will bolster real estate market^[1]. Additionally, the minimum down payment for first-time homebuyers was slashed to 15%, while a 1-trillion-yuan infrastructure fund targets transportation and public services to directly boost construction demandStrong policy support will bolster real estate market^[1]. These policies aim to restore market confidence and address the sector's structural challenges, including developer debt and declining consumer demandChina property report: Banks' exposure to real estate sector grinds lower^[3].

Strategic Asset Allocation in a Shifting Landscape

Investors are recalibrating their portfolios to align with the evolving policy environment. According to CBRE China, counter-cyclical asset classes such as multifamily housing, regional shopping centers, and modern logistics are gaining traction as more attractive asset prices and lower interest rates improve purchasing activity2025 China Real Estate Market Outlook^[4]. This shift reflects a broader trend of capital seeking resilience amid sector-specific risks. For instance, the construction sector is projected to grow by 3.2% in real terms in 2025, driven by infrastructure and energy investments, including 182 major projects launched in Q1 2025 requiring 340 billion yuan in total fundingChina Construction Industry Report 2025^[2].

The government's 14th Five-Year Plan (2021–2025) further underscores long-term opportunities, with a focus on innovations, digitalization, and low-carbon emissions. By 2035, China aims to construct 150 new reactors, requiring an estimated 3.1 trillion yuan in investmentChina Construction Industry Report 2025^[2]. Such initiatives are expected to sustain construction demand beyond 2025, particularly in industrial and energy infrastructure.

Navigating Risks and Structural Challenges

Despite these opportunities, risks persist. Developer debt remains a critical concern, with property sales projected to decline by 15% year-on-year in 2024 and tier-three city prices dropping by 14% over 2024–2025China property report: Banks' exposure to real estate sector grinds lower^[3]. Banks' exposure to real estate has also decreased, from 32.3% of total loans in 2020 to 25.9% in 2023, though some institutions, like Hankou Bank, still face elevated nonperforming loan (NPL) ratiosChina property report: Banks' exposure to real estate sector grinds lower^[3]. These dynamics highlight the need for cautious asset allocation, prioritizing projects with strong government backing and diversified revenue streams.

Morningstar notes that while homebuyer sentiment remains low, supportive policies and improving affordability—driven by lower mortgage rates and moderating prices—could catalyze demand recovery in 20252025 China Real Estate Market Outlook^[4]. Investors are advised to monitor how policy changes affect supply-demand dynamics and financing availability, particularly in residential markets where challenges are most acute2025 China Real Estate Market Outlook^[4].

Future Outlook and Policy Implications

The government's fiscal stimulus, including a 300-billion-yuan relending fund to incentivize local governments to purchase housing for public use, signals a commitment to stabilizing the sector2025 China Real Estate Market Outlook^[4]. These measures are part of a broader strategy to leverage low housing costs during the downturn to advance sustainable urbanization, addressing housing needs for migrant workers while promoting inclusive growth2025 China Real Estate Market Outlook^[4].

Looking ahead, the construction industry is forecast to grow at an average annual rate of 4.2% from 2026 to 2029, supported by transport infrastructure and industrial projectsChina Construction Industry Report 2025^[2]. However, the residential sector's recovery will depend on sustained policy support and improved consumer confidence.

Conclusion

China's 2025 stimulus measures represent a pivotal effort to stabilize its real estate and construction sectors, balancing short-term liquidity support with long-term structural reforms. For investors, strategic asset allocation must prioritize resilience, targeting infrastructure-linked assets and counter-cyclical opportunities while mitigating exposure to high-risk residential projects. As the government continues to refine its policy toolkit, the interplay between fiscal support and market dynamics will remain central to shaping the sector's trajectory.