Like many parents in Beijing, Zhao Hui is keen to ensure that his daughter gets the best possible education, and now that she has turned 12 and is entering the most competitive school years, he is planning to move house.
He likes his current apartment in the outer suburb of Tongzhou, which he decorated himself according to his own design, but he wants to move to a more central district where the schools are better.
“I plan to buy a suitable home in Dongcheng district, with an area similar to my current living space, around 80 square metres with two bedrooms and one livingroom, meeting everyone’s basic needs. The community should be pleasant, and the main requirement is that the surrounding facilities are good, as this would make life more convenient for both myself and my family,” he says.
Property in Dongcheng is more expensive, so Zhao is expecting to pay about RMB8 million (€960,000) for his new place, RMB2 million more than he is asking for his current apartment. His problem is that prices in Beijing’s suburbs are falling faster than in the centre and although he is looking for RMB 6 million, the best offer he has received is RMB5.1 million.
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“In the current market, to be honest, everyone is quite competitive,” he says. “If it takes too long to sell, my parents’ house is near where I want to move to and we can temporarily stay with them. But you also know that after all, the elderly don’t want to live with us, and we also don’t want to live with them.
“Ideally, I would sell my existing house first and then buy a new one. Only if it is really very difficult would we take such a transitional measure.”
Four years into China’s property-market slump, Zhao’s story is an increasingly common one as the market shows little sign of recovery. In fact, prices are falling faster than expected this year, according to S&P Global Ratings, which forecast in May that that sales of new homes would fall by 3 per cent but said last week that they are now likely to fall by 8 per cent.
This means that China’s property market will have halved in four years, from RMB 18.2 trillion in 2021 to less than RMB 9 trillion this year. And S&P, which until recently expected the market to stabilise by the end of 2025, now predicts that it will fall by a further 6-7 per cent in 2026.
The problem is that consumer sentiment remains weak as government action to support the housing market has petered out. After the authorities last year called for efforts to halt the property market crisis, mortgage interest rates fell and restrictions on buying multiple homes were eased.
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But there has been less action this year and the five-year loan prime rate, a reference for most of China’s mortgage lending, has fallen by just 10 basis points so far this year, compared to 60 basis points in 2024.
A promised relaxation of restrictions on buying homes in Beijing and Shanghai finally came in August but were mostly confined to the outskirts of the cities.
“Homebuyers’ confidence remains fragile. As such, we expect the government could roll out further measures to support demand. However, additional supportive measures may only come gradually, and on a city-by-city basis, in our view,” S&P said in a report on China’s property market last week.
“Declining rents will also likely squeeze home prices. As rents continue to fall, we expect investor demand to remain subdued. Prospective homebuyers may also opt to rent instead of own.”
Consumer sentiment faces challenges at home with the spectre of deflation and trade turbulence with the United States over tariffs and export restrictions. Beijing and Washington traded barbs on Thursday, with each side blaming the other for the latest standoff over new Chinese restrictions on the export of rare earth minerals.
US treasury secretary Scott Bessent told a forum in Washington that China was taking on the world with the new measures, which affect products where rare earths account for more than 0.01 per cent of the total value.
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The US claims that China’s action could halt global trade in a range of consumer products, affecting supply chains across the world.
“We’re going to have a fulsome, group response to this, because bureaucrats in China cannot manage the supply chain or the manufacturing process for the rest of the world,” Bessent said.
“We’re going to be speaking with our European allies, with Australia, with Canada, with India and the Asian democracies.”
The dispute threatens to derail negotiations between Chinese and US officials in advance of a planned meeting between Donald Trump and Xi Jinping at the end of this month.
Washington claims that Beijing’s latest action on rare earths breached the terms of the talks by introducing new trade restrictions while the two sides were negotiating.
But Beijing on Thursday accused Washington of breaching the terms first by expanding the number of Chinese companies on its “entity list” in late September. Companies on the list are subject to restrictions on the export of microchip-making and other high-tech equipment.
“The sudden shift in the trade atmosphere caught many by surprise, yet that’s not surprising. The direct trigger for this round of tension was Washington’s breach of promises – an all-too-familiar pattern,” the state-controlled Global Times said in an editorial.
“Washington has overestimated the leverage of its own tools while underestimating China’s capacity for counteraction and its strategic composure. This misjudgment has directly translated into a harsh dose of reality. After the US once again threatened to sharply raise tariffs on China, US stock and currency markets tumbled in response, triggering global market panic and casting a shadow over the world economy.”
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China’s dominance of the global market for rare earth minerals offers it leverage against the US and any allies Washington seeks to recruit in a trade war. And export figures this week showed that a sharp drop in Chinese exports to the US has been more than made up for by surging sales to the rest of the world, particularly in the global south.
Exports are more important than ever to a Chinese economy that has remained in the doldrums domestically since the coronavirus pandemic. If the downturn is evident in the residential property market, it is even more pronounced in the commercial property sector, as a broker in Beijing’s upmarket Wangjing district told me over a coffee.
“When I started 14 years ago, Beijing’s real estate market was booming. But the market, especially in office leasing, has undergone a profound transformation,” she says.
“Before, I had a lot of office buildings to rent, and my prices were high. It was a seller’s market, and people came to me, so I could offer higher rents. But now it’s a buyer’s market, and I have to go out and beg tenants to rent space.”
China’s zero-Covid policy ran from early 2020 to the end of 2022, exacerbating an economic softening that had already started a year or so earlier. As in western countries, more people started working from home during the pandemic and offices adapted to the new reality.
“After the outbreak of the epidemic, the demand for flexible hybrid offices increased. At the same time, they found that this kind of flexible office can reduce costs. Some employees can work remotely, and then they can reduce their office space, which is also a kind of flexibility.”
High-end apartments in Wangjing catered to international tenants, many of them posted by multilateral corporations to Beijing from Europe, the US, Canada or Australia. Many of those who left during the pandemic never returned and some foreign companies have reduced their presence in China, partly on account of geopolitical tensions.
“Above this coffee shop is an apartment building for foreign executives, with a monthly rent of approximately RMB20,000 to RMB30,000 (€2,400-€3,600) per unit. The vacancy rate has been increasing year by year in recent years, as foreign executives are now withdrawing.”
Until the mid-1980s, most people in Beijing were assigned an apartment by their work unit but it remained the property of the state. Then, as part of the reforms initiated by Deng Xiaoping, residents were allowed to buy the homes they were living in, usually for a very low price.
In the decades since then, property became a one-way bet in China as hundreds of millions of people moved into the cities and huge developments sprang up. As people started to earn more, they invested their savings in housing and the home ownership rate is now above 90 per cent.
The current downturn is the first prolonged property-market slump China has experienced and the unprecedented drop in the value of their homes is a psychological as well as an economic shock to many. And as the contraction persists into its fifth year, people are less inclined to buy.
“Chinese consumers tend to buy when prices rise and not when they fall. Now that housing prices are declining and show a continuing downward trend, the overall price may seem cheaper, but the more it falls, the less people buy,” says Li Sha.
At 74, Li is retired and rental income from a flat he bought in the late 1980s supplements his pension. Apart from the home he lives in, he owns a 200sq m apartment he inherited from his father, which he is struggling to sell.
He values the apartment at RMB20 million (€2.4 million) but he would accept RMB15 million if he received such an offer, which he has not.
“I don’t think the property market will recover. There are a lot of people who can’t afford to pay their mortgages now, and this problem can’t be resolved at the moment. And some people are planning to sell their houses because the government is planning to introduce a property tax and to tax rental income,” he said.
S&P expects the market to bottom out eventually and the top 100 developers saw sales rising slightly in September but the ratings agency does not foresee a return to the old days of endless expansion.
“We also assume that the market is concentrating, and that this will play to the strengths of the surviving developers. The end result may be a smaller market, but also a healthier and more resilient sector,” it says.
