Credit rating agency Fitch Ratings has stated that the Chinese real estate market may continue to slump in 2025, with housing sales and construction activities slowing down, facing obstacles to recovery due to structural challenges such as oversupply and declining affordability.
On Wednesday (January 22), Fitch Ratings announced that due to a significant decrease in total transaction area and average selling prices (down by 10% and 5% respectively), new home sales are expected to drop by 15%, reaching 7.3 trillion Chinese yuan (1 trillion US dollars).
Compared to mortgage rates, rental yields in major cities in mainland China are lower, indicating a further risk of declining house prices. Fitch Ratings noted that while the Chinese government has introduced a combination of policies to boost market sentiment, factors such as high inventory and a sluggish job environment are dragging down the prospects of the real estate market, leading to increased uncertainty.
The Chinese real estate industry is facing its fourth consecutive year of challenges. Before being hit by the “Three Red Lines” policy implemented in August 2020 and the COVID-19 pandemic, the real estate sector accounted for around a quarter of China’s GDP.
Fitch Ratings predicts a cooling down in residential construction activities as Chinese developers lack the willingness and capacity to acquire land and launch new projects. Gold Talent Lin, senior director of Fitch Ratings and head of China real estate ratings, stated that companies relying on real estate projects may report decreased contracts and revenue, thus adding pressure on cash flow and liquidity.
Since the crisis erupted, market estimates show that private developers including Country Garden Holdings and Sunac China have defaulted on over 160 billion US dollars in overseas bonds.
Nearly half of the rated issuers in Fitch Ratings’ Chinese real estate sector have a negative outlook. Fitch Ratings downgraded the rating of real estate developer Vanke from B+ to B- and placed it on a negative watch list. Gold Talent Lin cited weak cash inflows due to Vanke’s sales performance falling below expectations, negative news surrounding the company, and the high market debt maturing this year as key considerations.
Fitch Ratings has reduced the frequency of downgrades since 2023, as many rated issuers are state-owned enterprises. However, the continued downturn in the Chinese real estate industry poses pressure on sales, profit margins, and cash returns for real estate companies, indicating that despite government policy support, sales risks at both industry and company levels have not been eliminated.
Fitch Ratings pointed out that in the commercial real estate sector in mainland China and Hong Kong, owners face risks of declining occupancy rates and rentals due to oversupply and weak retail sales.
Gold Talent Lin mentioned that while robust fiscal and monetary support can restore buyer confidence and drive economic recovery, other risks such as geopolitical tensions and trade pressures may slow down economic growth and dampen market sentiment.