China’s Real Estate Bottoming Near; Core Cities Likely to Stabilize First
AI summary card
China’s Real Estate Bottoming Near; Core Cities Likely to Stabilize First
Deutsche Bank notes that China’s real estate downturn has lasted approximately five years, with severity comparable internationally. The current recovery is driven by fundamental improvements and is projected to reverse course before 2027.
- The real estate downtrend has reached international averages and is nearing its bottom.
- The current recovery is driven by increased transaction volumes and declining second-hand housing listings—signs of fundamental improvement.
- Stabilizing—and rebounding—rents may serve as a key leading indicator for home price recovery.
- Recovery will likely begin first in Tier-1 and economically strong Tier-2 cities, with nationwide broad-based price gains still some way off.
- Real estate stabilization will help transition China’s economy from its current 'narrow K-shaped' recovery toward broader macro expansion.
Report interpretation
Overview
Deutsche Bank’s latest report concludes that China’s real estate market has entered its late downturn stage and may be approaching a durable bottom. Although uncertainty remains, multiple indicators suggest that the depth and duration of this adjustment are comparable to international historical patterns, and the ongoing recovery is underpinned by genuine market dynamics—not short-term policy stimulus—making it sustainable. If stability is achieved over the next one to two years, this could support China’s shift from its current 'narrow K-shaped' economic recovery to a broader macro expansion.
Core views
The report argues for bottoming in three dimensions: First, international comparison indicates China’s real estate downturn, which began peaking in early 2021, exceeds five years—aligning with the median global cycle length (4–7 years)—and the cumulative fall in prices (~22% for second-hand homes) matches the international average (~20%). Second, this recovery fundamentally differs from the two brief rallies in early 2023 and late 2024: prior rebounds were largely policy-driven and reversed quickly once stimulus waned; in contrast, the current rebound features only modest policy adjustments without significant macro relaxation and reflects improved supply-demand dynamics. Critically, the inventory buildup of second-hand homes—spurred by speculative demand over recent years—is being absorbed: second-hand housing listings continue to fall in cities like Shanghai, while transaction volumes rise, breaking the historical negative feedback loop of 'ease → surge → oversupply'. Third, drawing parallels with Hong Kong, the report highlights its robust post-bottom recovery starting Q2 2025—not due to rate cuts or policy easing, but to improving fundamentals and inflows, leading to rising rents and restored buyer confidence. Currently, rents in China’s four Tier-1 cities have stabilized and begun rising, signaling a similar transmission path may be unfolding.
Analysis framework
The institution employs a 'triple-validation' methodology: (1)横向 benchmarking against international historical data to assess whether the cycle has lasted long enough and fallen deeply enough; (2)纵向 contrasting with the two false rebounds to pinpoint structural distinctions in this recovery; and (3)引入 external reference cases (e.g., Hong Kong) to extract transferable structural insights. This rigorous multi-dimensional cross-verification reduces reliance on single indicators or policy expectations, enhancing conclusion robustness.
Methodology notes
Assessing whether the market hasBottomed by observing divergences between supply-side indicators (second-hand listings) and demand-side indicators (transaction volume).
A decline in listings concurrent with rising volumes signals a transition from seller- to buyer-dominated market conditions and reduced inventory pressure—a key signal of fundamental improvement.
Determining whether rising transaction volumes stem from speculative or genuine residential demand.
The report emphasizes that the current volume rise correlates with falling second-hand inventories, ruling out 'false prosperity' and suggesting demand originates from end-users, not short-term traders.
Treating the rental market as a leading indicator for real estate, particularly for price outlooks.
Rents are leading indicators for prices. Sustained rental growth indicates reasonable forward income expectations, enabling durable price support.
Identifying key turning points where the economy shifts from contraction to expansion.
The report identifies 2025 as the macro turning point and 2026 as the likely turning point for rental stabilization—both acting jointly as catalysts for real estate recovery.
Understanding the evolving role of real estate across phases of the economic cycle.
Real estate once served as the 'front-runner' of economic recoveries but has now become an 'amplifier' of macro trends—implying its rebound should lag overall economic improvement.
Key data
- Real estate downtrend durationApprox. 5 yearsFrom peak in early 2021 to now, nearing the international median (4–7 years).
- Cumulative second-hand residential price decline22%Official statistics. In some cities, actual declines approach 30%, matching typical international declines (~20%).
- Second-hand listing trend in Tier-1 citiesContinuously decliningFalling listings in core cities like Shanghai signal exhaustion of SGV inventory.
- Rental changes in Tier-1 citiesStabilized and beginning to rebound2026 data show rents in Beijing, Shanghai, Shenzhen, and Guangzhou beginning to rise, approaching 2018–19 levels.
- Hong Kong post-bottom price recoveryApprox. 10%From Q2 2025 bottom, prices rose ~10% by 2026, offering key reference for mainland China.
Impact & implications
If real estate stabilizes as projected, broad multi-sector impacts could follow: First, it could bridge the current structural imbalance by linking 'new economy' (e.g., new energy, EVs) and 'old economy' (infrastructure, consumption), alleviating the 'K-shaped' recovery divergence. Second, restored household confidence in real estate could boost consumption willingness. Third,缓解的地方可房土地财政压力 could improve local debt sustainability. Fourth, enhanced financial stability of real estate as an asset class may restore broader financial market confidence. Thus, real estate bottoming is not only a industry inflection point but also a pivotal step toward China’s comprehensive macro rebalancing.
Risks
- If rental growth proves unsustainable,回升 may fail.
- Persistent population outflow in some cities may undermine effective demand.
- Functional deterioration of large developers' financial health may constrain new-home recovery.
- Sudden policy shifts, such as credit tightening or increased developer taxation.
What to watch
- Whether second-hand housing listings in Tier-1 and economically strong Tier-2 cities continue to decline.
- Whether rental levels in core cities sustain upward momentum.
- Whether new-home sales stabilize and begin rising.
- Whether local land transfer revenues show a turning point.