China housing market and property sector: China housing activity remains weak as the August reform accelerates a difficult structural transition

Overview

This macro research note reviews weak Chinese housing activity and assesses how the August 28 reform package could reshape developer funding, market adjustment, and the broader economy. JPMorgan sees long-term benefits from a safer housing model but expects substantial near-term costs from continued property-sector contraction.

Core views

JPMorgan's housing activity index remained subdued in August, with contraction widening across key indicators. Residential floor-space starts fell 31.3% year on year, sales declined 16.2%, and developers' funding sources dropped 26.8%. National Bureau of Statistics 70-city price declines appeared to stabilize somewhat, with new-home prices down 0.17% month on month on a non-seasonally adjusted basis and secondary-home prices down 0.31%. Tier-1 cities outperformed, led by Shanghai and Shenzhen, while Beijing lagged, with new-home and secondary-home prices down 0.2% and 0.1%, respectively. Yet the cumulative adjustment remains substantial: new-home prices are 14.2% below their 2021 peak and secondary-home prices are down 23.3%. Centaline's secondary-home asking-price index was still falling in September month-to-date, although sales-manager confidence improved following recent policy easing. The report characterizes the August 28 package as China's most significant housing-model overhaul in decades. It accelerates the move away from a high-turnover pre-sales model toward a completed-home framework. JPMorgan argues that this should strengthen buyer protection, reduce project-completion risk, and eventually support a healthier supply-demand balance. However, it also reinforces structural downsizing because the old system allowed developers to use buyer deposits and mortgage proceeds to fund construction and land purchases. Under the new framework, developers must depend more on equity, bank lending, and capital markets, while buyer funds and project revenues face stricter escrow supervision. Risk is therefore shifted away from households toward developers, banks, and investors; slower cash conversion and weaker capital recycling are expected to curb land purchases and new project starts. Demand-side easing, including extending mortgage maturities from 30 to 40 years, may increase repayment flexibility but is unlikely to materially revive demand amid weak confidence, subdued income expectations, and household deleveraging. JPMorgan sees a time-inconsistency problem: reforms that improve affordability, financial stability, and lower leverage also restrain investment, land sales, fiscal revenue, and growth. The report argues that advanced manufacturing, AI, and other new-economy sectors have not yet fully offset the property drag. Housing demand has, in JPMorgan's view, moved beyond its structural peak because of demographics, slower household formation, and maturing urbanization. Urban renewal and affordable housing can redirect investment toward existing stock and infrastructure, but are not expected to replace traditional development fully. Declining land-sale revenue marks the end of the land-finance era and raises pressure on local government finances, increasing the need for larger bond issuance, higher central-government transfers, and broader tax reform. Policymakers face a trade-off between accepting a faster supply and price correction to reach equilibrium sooner, or pursuing a gradual adjustment that extends the growth drag and requires stronger policy support. In particular, limiting price declines may entrench expectations of further declines—especially in oversupplied lower-tier cities—and prolong the quantity adjustment in sales, starts, and investment.

Analysis framework

JPMorgan combines its housing activity index with official 70-city price data, transaction and asking-price indicators, and a comparison of the old and new developer-financing systems. It then traces how financing and escrow changes affect developers' cash conversion, land purchases, starts, household confidence, and local-government finances.

Methodology notes

• Industry AnalysisSupply-demand framework

  Housing supply-demand adjustment

  The report assesses housing starts, sales, inventory, prices, oversupply, and demand conditions to explain why market rebalancing may take time.

• Industry AnalysisUpstream-Midstream-Downstream Transmission

  Developer-financing transmission

  The report explains how tighter escrow rules and reduced reliance on pre-sales shift funding risk and flow through to developers' capital recycling, land acquisition, starts, banks, and investors.

Key data

• Residential floor-space starts-31.3% YoYAugust contraction
• Residential sales-16.2%August year-on-year contraction
• Developers' funding sources-26.8%August year-on-year contraction
• New-home prices-0.17% m/m NSANBS 70-city measure
• Secondary-home prices-0.31% m/mNBS 70-city measure
• New-home prices versus 2021 peak-14.2%Cumulative decline
• Secondary-home prices versus 2021 peak-23.3%Cumulative decline
• Mortgage maturity extension30 to 40 yearsDemand-side policy measure

Impact & implications

JPMorgan argues that the reform can produce a safer and more balanced housing system over time, but its financing changes are likely to deepen near-term sector contraction, weigh on investment and land revenue, and sustain fiscal pressure on local governments.

Risks

• Weak buyer confidence, subdued income expectations, and household deleveraging may limit the effect of mortgage easing on housing demand.
• Persistent oversupply and expectations of further price declines, particularly in lower-tier cities, could prolong weakness in sales, starts, and investment.
• Falling land-sale revenue may intensify local-government fiscal pressure.

What to watch

• Local implementation of the August 28 housing reforms.
• Whether price stabilization reduces expectations of further declines or instead prolongs the quantity adjustment.
• The degree of fiscal support through bond issuance, central-government transfers, and tax reform.