China’s real estate recession will be deeper than expected

BEIJING—S&P Global Ratings has lowered its forecast for China’s real estate sales for this year, with just two months left until 2026.

The company announced Sunday that primary real estate sales are likely to fall by 10-14% this year, worse than the 5-8% decline in sales in 2026 predicted in October.

“The economic downturn is so deep-seated that only the government can absorb the excess inventory,” analysts said in a note. They added that the state may buy more unsold properties to build affordable housing, but such efforts so far have been piecemeal.

China’s real estate market, which once accounted for more than a quarter of the economy, has seen its annual sales volume halve in just four years. While the Chinese government’s crackdown on developers’ heavy reliance on debt for growth caused the initial downturn, consumer demand for housing has yet to recover.

Economists have long warned about overbuilding in China’s real estate market. However, according to the rating agency, developers have continued to build despite sluggish sales, and for the sixth year in a row, new homes remain unsold even after completion.

“China’s oversupply of primary homes is keeping the real estate market from recovering,” S&P analysts said, adding that the oversupply would cause prices to fall another 2-4% this year, following a similar decline last year.

The S&P report says, “Price declines undermine homebuyer confidence.” “It’s a vicious cycle that can’t be easily escaped.”

Of particular concern, S&P said, was that price declines in China’s big cities worsened in the fourth quarter of last year. “We have previously viewed these markets as healthy and likely to serve as a starting point for national wealth recovery,” the report said.

The report said Beijing, Guangzhou and Shenzhen each reported a decline in home prices of at least 3% last year, with only Shanghai among major cities reporting an increase, with 2025 rising 5.7% from 2024.

China’s real estate recession gradually worsened throughout 2025.

S&P had forecast a 3% decline in new home sales in May, but revised that down to an 8% decline in October. Ultimately, sales fell 12.6% to 8.4 trillion yuan ($1.21 trillion), less than half of the 2021 annual sales of 18.2 trillion yuan.

This has increased pressure on China’s beleaguered property developers.

Analysts said four out of the 10 Chinese development companies it rates could come under pressure to downgrade if sales fall 10% below S&P’s base scenario for this year and next.

This does not include China Vanke, once one of China’s biggest development companies, asking late last year to postpone repayments on some of its debt.

Chinese authorities have yet to announce major new support for real estate and hope to redouble efforts to develop advanced technology.

US-based research firm Rhodium Group said last month that China’s expansion into high-tech industries would not be large enough to offset the country’s real estate slump, leaving it more dependent on exports for economic growth and more exposed to trade tensions.

Key policymakers are expected to announce this year’s economic goals in Congress next month.