Despite the central government’s implementation of a series of stimulus measures, the fundamental weakness in China’s real estate market has not been significantly alleviated.
Data released by the country’s National Bureau of Statistics (NBS) on December 16 indicated that the number of cities where the sales prices of commercial residential properties increased month-on-month had risen among the 70 large and medium-sized cities. In first-tier cities, the sales prices of commercial residential properties generally increased on a month-on-month basis, while the declines in second- and third-tier cities were less severe. For the first time this year, the year-on-year price decrease across all city tiers showed a narrowing. It appears that despite the central government’s focus on other key sectors, real estate has emerged as a top priority for risk prevention in the upcoming year.
From a policy perspective, China’s Central Economic Work Conference has explicitly stated that the main focus for next year’s economic work is stabilizing both the real estate and stock markets. This follows the Central Politburo’s meeting on December 9 in 2024, which outlined a goal to stabilize the real estate market by 2025, signaling a stronger commitment from the central government. Among the key tasks discussed at the meeting, it was emphasized that risks in critical sectors must be effectively managed, and systemic financial risks must be avoided. This is the third consecutive year that real estate risk prevention has been a focal point in the Central Economic Work Conference. The 2022 meeting emphasized “effective prevention and resolution of major economic and financial risks”, specifically ensuring the stable development of the real estate market and addressing risks related to leading real estate companies. The 2023 conference also highlighted the need for “sustained and effective risk prevention,” including a steady approach to resolving real estate risks.
This year’s conference reaffirms that efforts to stabilize the real estate market and halt its decline must be “intensified”, suggesting that support policies will be more fully implemented. Given that the real estate sector is deeply connected to local government debt and financial institutions, managing real estate risks is a critical first step in preventing systemic financial instability.
From an economic perspective, the real estate industry remains a key pillar of domestic demand, as highlighted in this year’s Central Economic Work Conference. It is expected to continue playing a significant role in driving domestic consumption and will maintain its position as a key sector in the medium to long term. Moreover, the real estate sector stimulates the output of various upstream and downstream industries. Through investment and consumption, it drives manufacturing sectors such as building materials, furniture, and wholesale, and significantly boosts the third sector, including finance and business services.
Additionally, land revenue remains a core component of local government finances, with taxes and fees associated with land accounting for more than 40% of total revenue. In 2023, local government revenues totaled approximately RMB 18.4 trillion, with land-related taxes and fees contributing about 10.1% of local fiscal revenue. Land transfer revenue accounted for 31.6% of total local fiscal income, meaning land finance contributed about 41.7% of local government revenue.
Given its status as a pillar industry, the real estate sector has been in a state of weakness in recent years. A collapse of the real estate sector would severely affect China’s economy, employment, local government finances, and financial stability, potentially jeopardizing social security and stability. This highlights why real estate has become the central focus of China’s risk prevention efforts for 2025.
