Morgan Stanley Says China’s Property Costs Might Drop One other 3 % in 2026

Analysts at Morgan Stanley see China’s housing stoop persevering with this yr, with consultants from the US funding financial institution predicting that new residence costs might drop one other 2 to three % as the federal government continues to take a reactive strategy to coverage fixes and customers stay timid.

With official knowledge displaying common residence costs in China having declined 2.4 % in November from the identical month a yr earlier, the forecast places 2026 roughly consistent with the previous yr’s expertise. With residence costs having now declined 12.1 % from their peak in 2021, the nation has now skilled 4 straight years of market decline, in line with a Morgan Stanley analysis word launched earlier than the vacations.

Hong Kong-based Morgan Stanley analysts Stephen Cheung and Cara Zhu attributed the period of the stoop partially to warning on the a part of policymakers, who’ve to date taken an incremental strategy to fixing available in the market and most well-liked response over reform, with these techniques prone to proceed this yr.

“We predict the narratives on housing coverage in 2026 will probably be just like these in 2025, with threat mitigation reasonably than GDP development remaining the highest precedence of regulators, Cheung and Zhu mentioned within the word. “Roll-out of any significant fiscal-backed stimulus might keep reactive and measured, and is prone to lean in the direction of 2H, to cushion the tempo of residence worth declines.”

Hunch Not a Disaster

Costs for brand new properties in 70 main Chinese language cities fell 0.39 % in November in comparison with October, in line with the newest knowledge from China’s Nationwide Bureau of Statistics. Costs for second-hand properties have been underneath higher stress, declining 0.66 % in November, and are actually down 20.8 % since 2021, in line with an evaluation by European financial institution ING.

With the house worth slide dragging on, the worth of developer gross sales of recent properties within the January to November interval fell 11.2 % in comparison with the identical interval in 2024, in line with official knowledge.

With China’s actual property business having gone by way of a number of years of decline, Morgan Stanley identified that the importance of the housing market to the nation’s macroeconomy has been considerably lowered, making officers much less prone to intervene.

“That is according to the truth that incremental nationwide coverage easing on the property market was muted in 2025 given no new social and monetary threat emerged within the yr,” Cheung and Zhu mentioned.

Decrease ranges of fear amongst policymakers may additionally clarify the shortage of official strikes to assist struggling builders, with one-time business customary bearer China Vanke persevering with to wrestle to win extensions on two tranches of home bonds price a mixed $813 million. With each units of bonds having come due final month, the corporate was capable of win a 30-day grace interval from traders, however is nonetheless searching for approval for one yr extensions of each units of debentures.

Shopper Confidence Dims

With residence costs persevering with to say no and the federal government displaying much less curiosity in supporting the true property business, customers are dropping religion in a housing market that many had lengthy seen as unstoppable.

A survey by Morgan Stanley performed in October discovered that 67 % of respondents from China’s tier 1 cities anticipate additional declines in housing costs, worsening from 50 % in July and 39 % in April.

Nationwide, potential sellers confirmed a way of urgency, with the bulk prepared to simply accept a loss. On the opposite facet of the market, solely 2 % of potential consumers mentioned they plan to make their purchases inside the subsequent 12 months.

This weak shopping for sentiment is stopping builders from shrinking an overhang of unsold housing, with Morgan Stanley pointing to weaker gross sales in latest months as potential resulting in an additional enlargement of developer inventories.

“Contemplating the accelerated gross sales decline since October, we consider the nationwide stock might development as much as 31-32 months in December 2025 regardless of restricted new main launches,” Cheung and Zhu mentioned.

Gross sales Anticipated to Fall Additional

Given the excessive ranges of stock in each China’s main and secondary housing markets, and with housing coverage prone to stay reactive, Morgan Stanley expects the worth of recent residence gross sales in China to fall 10.5 % in 2026 from the previous yr to RMB 7.57 trillion (USD 993 billion).

Primarily based on estimates of the time obligatory for the market to soak up the present stock of unsold housing, Morgan Stanley expects that residence costs in tier one, and in main tier two cities might stabilise within the second half of 2027 if the macro setting stays steady and resilient. The market in different places is predicted to wish extra time to discover a backside, on account of oversupply and difficult demographics.

In a separate evaluation final monthFitch Rankings predicted that residence costs in China will fall by 4 % to six % in 2026, with an additional 2 to 4 % decline doubtless in 2027.

This text was first seen on the Asia actual property platform mingtiandi.com and was written by Iris Hong

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