Abstract:

China's property sector is entering what increasingly appears to be a prolonged structural decline, with prices expected to continue falling through 2026. Since 2021, the market has already lost roughly half its value, while excess housing supply remains widespread. What was once one of the country's primary engines of growth has instead become a significant drag on domestic demand, financial stability, and local government finances. The implications are systemic: developers continue to face solvency pressures, households remain heavily exposed to depreciating real estate assets, and local governments are losing a critical source of revenue tied to land sales. These strains are feeding into the broader banking system, raising overall credit risk across the economy. At the same time, the effects are increasingly global, as Chinese capital reallocates across international real estate markets, reinforcing demand in some segments while weakening it in others. There is little evidence to suggest a meaningful rebound in the sector. Rather, current policy signals point toward a smaller, more tightly controlled property market alongside a broader reallocation of capital toward advanced manufacturing and strategic technology sectors. In this context, firms should reduce exposure to highly leveraged real estate assets—particularly in lower-tier cities—while prioritizing resilient urban assets and sectors more closely aligned with state policy priorities. Acting early will allow firms to limit downside risk and reposition toward areas of longer-term structural growth; failing to adjust within the next planning cycle could leave investors exposed to prolonged asset depreciation and elevated credit stress. Full paper available here.

Marcel Kolb is a Master of Arts in International Relations candidate at JHU-SAIS. His interests lie at the intersection of economic statecraft and security, as well as in responsible international cooperation and practical application of evidence-based foreign policy research. Before SAIS, he graduated from a French-German double degree program in law with professional experiences i.a. at the German Embassy in Ghana and a major consulting firm