Has China's property sector turned a corner?

For investors looking at China, there can be a gap between perception and reality. 

The country’s macroeconomic backdrop is strong, as evidenced by the credit market. The yield on the 10-year Chinese government bond stands at 1.7% – compared to 4.6% on the 10-year US Treasury.  

Meanwhile, China’s debt-to-GDP ratio is low relative to other large economies and household savings are high. Unlike much of the developed world, inflation is under control (1% in June).

China has high levels of energy self-sufficiency – supported by large coal reserves and its huge renewables sector – which have insulated it from the economic fallout from the Iran war. As a global leader in green energy and electric vehicles (EVs), it stands to benefit from the surge in demand.  

However, there remains a disconnect between China’s economy – GDP grew 4.7% in Q2 2026 – supported by globally competitive companies, and the sweeping discounts still available in the country’s equity market.

A persistent tailwind

The most persistent domestic headwind hampering the country's economy is the impact of the property crisis five years ago. 

Residential property prices peaked in Q3 2021 and since then real estate – and property-related sectors – have become a much smaller part of the overall economy. But the property crisis continues to impair household, corporate, and local government balance sheets. The relentless focus on de-leveraging has undermined consumer confidence and contributed to a deflationary backdrop. It’s a vicious cycle. 

Since the peak, property investment has almost halved, dragging down fixed-asset investment – spending on buildings, infrastructure and machinery – as well as jobs and growth. New housing starts, meanwhile, have plummeted by 70–75%, and peak-to-trough national price drops are estimated between 20–40%.

However, plenty of evidence suggests the sector has turned a corner. The overhang of housing stock is beginning to ease, helped by the collapse in new-build activity and government purchases of selected inventory for social housing.

This can be seen in Hong Kong, where residential prices have risen by more than 10% since bottoming in H1 2025. Another example of this rebound can be found in the pleasant coastal city of Huizhou which is 23 minutes from Shenzhen and 50 minutes from Hong Kong by high-speed rail.

A one-bedroom apartment in Huizhou with a sea view can rent for as little as $130 a month. If you consider that average graduate pay in China is about $952 a month, this represents a bargain. The reason is that the city has an oversupply of new-build apartments in comparison with the size of the local population. However, evidence suggests this imbalance is easing. Huizhou is attracting thousands of young people – many working remotely – who are attracted by the city’s low-cost quality of life. The value gap has become too wide to ignore.

It is one of several signs that China’s property downturn may be past its worst. Supply and demand are starting to rebalance, while prices and rents are finding a floor in parts of the country.

One knock-on impact of China’s sluggish property market is that it has encouraged households to look at other investment options. The domestic equity market represents a small proportion of Chinese households’ assets, and we expect it to grow in appeal.