China's Real Estate Bottoming Out: Seize the Rebound with Policy-Backed Plays

China’s real estate sector has been in the throes of a multi-year slump, marked by overbuilding in lower-tier cities, developer defaults, and a slowdown in urbanization. Yet, the data now reveals a critical inflection point: the bottoming-out phase is here, driven by aggressive government stimulus and structural reforms. For contrarian investors, this presents a rare opportunity to buy undervalued assets poised to rebound as policy tailwinds gather momentum.

The Bottoming-Out Phase: Stagnation Signals Stability

After years of declines, residential prices in tier-1 cities like Shanghai and Shenzhen have stabilized, with annual declines narrowing to 2.8% in March 2025—down from 4.5% in early 2024.

Even more striking, Shanghai’s new home prices rose 10.1% year-on-year, buoyed by luxury demand and relaxed mortgage policies. While lower-tier cities still face steep declines (5.7% in third-tier new homes), the sector-wide free fall has halted.

Crucially, government data shows monthly price stagnation in April 2025—no growth, but also no further collapse. This plateau marks the exhaustion of downward momentum, with analysts forecasting a 2.5% annual price decline in 2025, followed by modest growth from 2026 onward.

Policy Catalysts: How Beijing is Engineering Recovery

The Chinese government has deployed a three-pronged strategy to stabilize the market:

1. Demand-Side Stimulus:
2. Mortgage rates for first-time buyers have been slashed to 3.09%, with down payments reduced to 15%.

3. Deed taxes for affordable housing purchases are now as low as 1%, and purchase restrictions in cities like Guangzhou have been lifted entirely.

4. Supply-Side Liquidity:

5. The "Project Whitelist" initiative has allocated RMB 4 trillion in credit to complete stalled developments, ensuring delivery and reducing shadow inventory.

6. A RMB 300 billion relending facility lets local governments buy unsold homes for affordable housing, directly reducing developer debt.

7. Structural Reforms:

8. Over 1 million shantytown units are being renovated under urban renewal plans, redirecting idle land to housing and infrastructure.
9. Affordable housing projects now account for 30% of new construction starts, absorbing excess capacity while addressing urbanization needs.

Strategic Investment Plays: Where to Deploy Capital

1. State-Backed Developers: Safety in Liquidity

State-owned enterprises (SOEs) like China Vanke (000002.SZ) and China Overseas Land & Investment (688.HK) are benefiting from direct government support. These firms have access to low-cost financing, guaranteed projects under urban renewal, and minimal default risk.

Their shares are trading at 40% below pre-pandemic highs, offering a margin of safety.

2. Affordable Housing Plays: The Singapore Model

Beijing’s push for affordable housing mirrors Singapore’s success in balancing affordability and profitability. Firms like Poly Development (000049.SZ), which focus on mid-tier housing and rental projects, are ideally positioned. Their valuations are depressed, yet they stand to gain from RMB 1.5 trillion in affordable housing bonds issued by local governments by 2025.

3. Construction Materials: The Hidden Rebound

Urban renewal and infrastructure projects will drive demand for steel, cement, and glass. Companies like Baoshan Iron & Steel (600019.SH) and China National Building Material (3000.SZ) are trading at historically low price-to-earnings ratios, with earnings set to rise as construction activity picks up.

Risks and Timing Considerations

• Lower-Tier Cities: Overbuilding and weak demand mean these markets may lag recovery until 2027 or later. Stick to tier-1 and state-backed projects.
• U.S. Trade Barriers: Tariffs on Chinese goods, including construction materials, remain a headwind. Monitor trade negotiations closely.
• Execution Risk: Policy success hinges on local governments’ ability to absorb inventory.

Conclusion: Act Now—The Clock is Ticking

The real estate sector’s bottoming-out phase is confirmed by stabilizing prices, policy momentum, and pent-up urbanization demand. While risks persist, the window to deploy capital at deep discounts is narrowing. Investors who act now—targeting state-backed developers, affordable housing, and materials stocks—will position themselves to capture the 10–15% annual returns analysts project for 2026–2027.

This is not a bet on speculative growth but on policy-driven stabilization. The rebound is coming—and the best entry points are now.

Invest decisively, but stay nimble.