China's Real Estate Doldrums: Resale Prices Plummet Amid Oversupply and Policy Struggles

China's real estate sector continues to face significant headwinds, as evidenced by the latest data showing a sharp decline in resale home prices in April 2025. According to a report by the China Index Academy, the average price of resale homes across 100 cities fell by 0.7% month-on-month, marking a continuation of a downward trend that began in 2021. Year-on-year, the decline was even steeper at 7.2%, underscoring the deepening challenges in a market once pivotal to the nation's economic growth.

The Widening Gap Between Resale and New Markets

While resale prices are plummeting, new residential property prices in the same cities rose by 2.5% year-on-year, highlighting a stark divergence between the primary and secondary markets. This gap suggests that developers are still able to maintain pricing power in new projects, perhaps due to controlled supply, while existing homeowners face intense competition for buyers as listings surge. The China Index Academy attributes the resale slump to a "relatively high number of listings," driven by eased resale restrictions in some cities and a broader strategy of offloading unsold inventory.

The index’s decline reflects investor pessimism about the sector’s recovery, with real estate stocks underperforming the broader market by over 15% in the past 12 months.

Systemic Challenges Underpinning the Decline

The April data underscores a crisis rooted in oversupply, weak demand, and developer liquidity issues. Analysts estimate that resale prices have fallen 20–30% since their August 2021 peak, with declines accelerating after February 2025. The sector’s struggles are now a drag on the broader economy: property investment fell 9.8% year-on-year in early 2025, while construction starts plunged 29.6%, signaling a loss of confidence in future demand.

Structural factors exacerbate the pain. Stagnant household incomes, coupled with lingering fallout from developer defaults (e.g., Evergrande), have eroded buyer confidence. Meanwhile, trade tensions with the U.S. add external pressure, complicating efforts to stabilize growth through real estate.

Policy Measures: Limited Success and Uncertain Pathways

Government interventions—including easing mortgage rates, relaxing purchase restrictions, and repurchasing unsold homes for affordable housing—have shown only marginal effects. March 2025 data showed new home prices stabilizing month-on-month but still declining 4.5% year-on-year, while resale prices continued their slide.

Premier Li Qiang’s emphasis on affordable housing initiatives aims to absorb excess inventory, but analysts like Moody’s Sarah Tan caution that recovery will be uneven and fragile. She notes, "The market’s reliance on price cuts to drive sales suggests a race to the bottom, with long-term consequences for household wealth and fiscal stability."

Outlook: Bottoming Out?

GDDCE Research’s Ma Hong projects that resale prices may hit bottom by late 2025, contingent on policy support such as cuts to long-term lending rates. However, external risks—including U.S. tariffs and global real estate investment volumes down 36% year-on-year—loom large.

Conclusion: Navigating a Fragile Recovery

The April 2025 data paints a clear picture: China’s real estate market remains mired in a downturn, with resale prices under relentless pressure. The 7.2% year-on-year decline and widening gap with new-home prices reflect systemic imbalances that policy alone may not resolve. Investors should remain cautious, monitoring not only policy tweaks but also signs of demand resilience, such as a rebound in construction starts or a narrowing of inventory gluts.

The sector’s role as a 25% contributor to China’s economy at its peak underscores its importance—its recovery could cushion growth, while further declines risk deepening stagnation. For now, the path forward remains fraught with uncertainty, demanding a watchful eye on both domestic policy and global headwinds.

In this environment, investors may favor blue-chip developers with strong balance sheets or infrastructure stocks tied to affordable housing programs, while avoiding overexposure to highly leveraged firms. The real estate sector’s journey to stabilization will be a bellwether for China’s economic health in the coming year.