S&P Warns China’s Property Slump Is Deepening Faster Than Expected

China’s real estate downturn is set to worsen further in 2026, according to a revised outlook from S&P Global Ratings, which now expects a steeper fall in property sales than previously forecast.

In a note released on Sunday, the ratings agency said China’s primary real estate sales are likely to decline between 10% and 14% this year. That compares with an earlier estimate made in October, which projected a milder contraction of 5% to 8% for 2026.

Analysts described the downturn as “so entrenched that only the government has capacity to absorb the excess inventory,” pointing to persistent oversupply and weak buyer confidence across the housing market.

Oversupply and falling prices

China’s property sector, once responsible for more than a quarter of the country’s economic output, has been in retreat for several years. Annual sales volumes have fallen by nearly half in just four years, following Beijing’s crackdown on developers’ heavy reliance on debt and a prolonged slowdown in household demand.

Despite the slump in sales, construction activity has continued, leading to a sixth consecutive year of completed but unsold new homes, according to S&P. The agency said this glut of primary housing is preventing any meaningful recovery and is expected to push home prices down by another 2% to 4% in 2026, similar to last year’s decline.

“Falling prices erode homebuyers’ confidence,” the report said, warning of a self-reinforcing cycle that is proving difficult to break.

Big cities no longer immune

One of the most concerning developments flagged by S&P is the worsening price trend in China’s largest cities, which were previously seen as relatively resilient.

Beijing, Guangzhou and Shenzhen all recorded home price declines of at least 3% last year, while Shanghai was the only major city to post growth, with prices rising 5.7% in 2025 compared with 2024. S&P said the deterioration in top-tier cities undermines hopes that they could lead a broader national recovery.

Rising pressure on developers

The deepening slump is increasing financial stress across China’s real estate sector. S&P warned that if sales fall significantly below its base-case projections this year and next, several rated Chinese developers could face downward pressure on their credit ratings.

The agency noted that some major players are already struggling. China Vanke, once among the country’s largest developers, requested delays on portions of its debt repayments late last year.

Policy support remains limited

So far, Beijing’s response has focused on targeted measures, such as encouraging local governments to buy unsold homes for affordable housing. S&P said these efforts remain piecemeal and insufficient to offset the scale of excess supply.

Chinese authorities have shown limited appetite for large-scale property stimulus, instead prioritising investment in advanced manufacturing and high-technology industries. However, external analysts have cautioned that growth in those sectors may not be enough to counterbalance the prolonged weakness in real estate.

With top policymakers set to outline economic priorities at next month’s parliamentary meetings, markets are watching closely to see whether stronger support for the property sector emerges - or whether China’s housing downturn will continue to weigh on the broader economy.