China's Looming Fiscal and Monetary Stimulus: Is the Property Sector the Next Big Rebound Catalyst?

China's property sector, once the engine of its economic miracle, now stands at a crossroads. After years of speculative overbuilding, debt-laden developers, and a systemic slowdown, policymakers are cautiously navigating a path to stabilization. With fiscal and monetary stimulus measures gaining momentum in H2 2025, investors are asking: Can the property sector become a catalyst for a broader economic rebound, or is its recovery too structurally damaged to materialize?

Fiscal and Monetary Stimulus: Indirect Support for a Fragile Sector

China's fiscal and monetary policies in 2025 have prioritized stability over direct intervention. The government has avoided broad-based property market stimulus, instead channeling resources into high-quality urban renewal and infrastructure upgrades. By the end of July 2025, over RMB 2.6 trillion in local government special-purpose bonds had been issued, funding projects like the renovation of 25,000 old residential compounds. These initiatives indirectly support construction activity while sidestepping the risks of another speculative boom.

Monetary policy remains accommodative, with the PBOC maintaining low policy rates and hinting at potential reserve requirement ratio (RRR) cuts to inject liquidity into the banking system. However, these measures are not tailored to the property sector. Instead, they focus on sectors like green finance and advanced manufacturing, reflecting a strategic shift toward long-term economic resilience.

Debt Restructuring: A Painful but Necessary Transition

The property sector's debt crisis has been a defining feature of China's economic landscape. Major developers like Evergrande, Country Garden, and Sunac have faced defaults, with Evergrande's delisting in 2024 marking a symbolic end to the era of unchecked growth. While the government has introduced measures to stabilize stalled projects and ease mortgage burdens, the sector's structural issues—overcapacity, weak demand, and high household debt—remain unresolved.

Sunac China Holdings, a bellwether for the sector's restructuring efforts, has made notable progress in its onshore debt plan. By August 2025, the company had secured approvals for a multi-faceted restructuring, including a 10-year debt extension, cash tenders, equity conversions, and asset settlements. For example, bondholders could exchange CNY 100 of debt for 13.5 shares of Sunac, or opt for a four-year asset trust with a conversion rate of CNY 35 per CNY 100. These steps, while complex, signal a shift toward sustainable capital structures.

However, Sunac's path is far from smooth. A Hong Kong court hearing in March 2025 over a liquidation petition by China Cinda HK Asset Management Co. underscores the fragility of offshore restructuring. Meanwhile, the company's cash reserves, estimated at CNY 5.4 billion as of June 2024, are insufficient to cover long-term obligations. Analysts project that Sunac's onshore restructuring may not fully conclude until late 2025, with offshore challenges potentially extending into 2026.

Structural Reforms vs. Market Realities

The government's “new model” of property development—emphasizing urban renewal and affordable housing—aims to address the sector's imbalances. Yet, this approach faces headwinds. Government-led housing inventory clearance programs, which mobilize state-owned enterprises (SOEs) and bad-debt managers to purchase unsold homes, have shown limited progress. As of early 2025, less than 4% of the 408 million square meters of excess inventory had been repurchased, with SOEs themselves constrained by financial strains from past overextensions.

Moreover, demographic and economic trends weigh on recovery. China's population is aging, and household debt remains at record highs. Even with fiscal stimulus, demand for new housing is unlikely to rebound to pre-2020 levels. The sector's contribution to real estate investment has already fallen to 11.2% in H1 2025, and home prices have declined for 42 consecutive months.

Investment Implications: Cautious Optimism for the Long Term

For investors, the property sector's recovery hinges on two critical factors: the pace of debt restructuring and the effectiveness of structural reforms. While Sunac's onshore progress is encouraging, the broader sector remains in a deleveraging phase. A sector-wide rebound is unlikely before 2026, with risks of further defaults and liquidity crunches persisting into 2025.

However, long-term investors may find opportunities in companies that successfully navigate restructuring. Sunac's equity conversion plan, for instance, could unlock value if its shares appreciate post-restructuring. Similarly, firms involved in urban renewal and affordable housing—such as those benefiting from the 300 billion yuan government buyback program—may see gradual demand improvements.

Conclusion: A Slow, Painful Path to Stability

China's property sector is unlikely to be the next big rebound catalyst in the near term. The government's cautious, targeted approach prioritizes systemic stability over short-term gains, and structural challenges like overcapacity and weak demand will linger. While fiscal and monetary stimulus provide a supportive backdrop, a sector-wide recovery will require years of deleveraging, urban renewal, and demographic adjustments.

For now, investors should adopt a defensive stance, focusing on companies with strong restructuring plans and exposure to government-backed initiatives. The property sector's eventual normalization may take until 2026 or later, but those who position early could benefit from a gradual, if modest, rebound.