Mixed News on China’s Perennial Property Crisis

Commentary

Although China has made some progress resolving its ever-present property crisis, problems seem set to drag on for some time to come.

Some cities, notably Shenzhen, report a welcome decline in the inventory of residential properties, a critical first step in resolving this crisis. But a likely new wave of defaults in China’s bond market suggests that this matter will weigh on the country’s economy for some time to come.

The city of Shenzhen offers good news. Reports from that city indicate that the inventory of unsold housing units has fallen to a seven-year low. Data from mid-April, the most recent available, indicate a 17 percent drop in unoccupied units from this time last year.

Other cities have also made progress, albeit less dramatically. Anecdotal reports from Shanghai note “pockets of strength.” Overall, data from 19 major Chinese cities show a 10 percent drop in such inventories through March, the most recent period for which data are available. That is much less impressive than Shenzhen, but it suggests that things are going in the right direction, although certainly at a slower pace than Beijing would like.

While the inventory from Shenzhen is reported to be only 9 1/2 months of sales, and HSBC research suggests that anything below 14 months of sales will bring price stability, particulars about this city suggest that this may not be indicative of national progress. Overbuilding in Shenzhen never reached the proportions it did over much of the rest of China. There was always a shortage of land in Shenzhen.

Also, property prices had fallen faster and sooner there than elsewhere in China, giving Shenzhen an earlier and more powerful buying incentive than elsewhere. Without a doubt, the city has a lead in dealing with this crisis, but that does not mean that the rest of China will catch up any time soon.

That fact is evident in data on property values generally. In March, the most recent period for which figures are available, property prices in China fell by 0.2 percent from February and 3.3 percent from year-ago levels, a downward acceleration from the January-to-February period.

Declines were evident in Beijing (2.1 percent), Guangzhou (4.7 percent), and almost every other major city except Shanghai, which saw a 3.7 percent price increase from year-ago levels. But even the Shanghai increase was a deceleration from the opening months of this year. Of the 70 large- and medium-sized cities in China, only one in five showed any rise in real estate prices.

Also indicating that China is far from out of the woods on this property crisis are expectations among the country’s financial people that the horizon presents a likely surge in developer defaults. According to the bankers involved, the coming defaults would be better called re-defaults because most are products of earlier defaults and restructurings. A lot of the blame for this situation lies with Beijing, which throughout has issued directives against outright defaults and, in so doing, has muddled pricing and risk management.

Whatever the story on blame, the coming problems seem set to involve the equivalent of some $71.1 billion in offshore bonds and some 7.2 trillion yuan ($1.1 trillion) in China’s domestic bond market. The domestic figure is up 16 percent from this time last year. In 2025, according to Huayuan Securities, property debt amounted to fully 75 percent of all defaults or extended credit bonds. Although property-related defaults have fallen each year since their highs in 2022, these expectations for 2026 are nonetheless significant.

The takeaway from this news has two parts. First is that China is indeed working through the legacy of its terrible property crisis, although only very gradually. The news from Shenzhen should be viewed as sailors might view signs of land from straws in the wind. Second is the inescapable fact that the burden of debt built up over years of excessive and imprudent building continues to weigh on Chinese finance and hence on the general economy and seems set to do so for quite a while, at least into 2027.

Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.