China property sector to keep shrinking next year, Fitch says

China’s property sector is expected to continue contracting next year, with new home sales value falling 7 percent to 8 percent to about 7 trillion yuan (HK$7.72 trillion), as weaker demand and falling prices persist, credit rating agency Fitch Ratings said.

Fitch said the decline will be driven by a roughly 5 percent drop in sales volume and a low single-digit fall in average selling prices. The sector continues to face structural headwinds including demographic shifts, job-market uncertainty, weak housing affordability and elevated inventory levels, it added.

While risks remain, Fitch said ongoing policy support, easing contagion from developer defaults and sales gradually approaching a more sustainable long-term level should help narrow the pace of contraction.

The agency said a broad and coordinated policy response is needed for the market to stabilise, including measures to stimulate economic growth, improve labour-market conditions and accelerate inventory clearance. Without stronger confidence-restoring policies at the macro level, home price declines could exceed Fitch’s forecasts, potentially unsettling the market further through rising mortgage delinquencies and an increase in negative equity.

Fitch expects divergence within the sector to persist, with performance varying between state-owned, private and mixed-ownership developers, across different cities and even among individual projects within the same city.

Among Chinese developers rated by Fitch, about 75 percent are state-owned enterprises. Around a quarter of those ratings carry negative outlooks or are on negative watch, down from about 60 percent at the end of 2024, reflecting early signs that the industry downturn may be bottoming out. The improvement is most evident among leading state-owned developers, where sales, operating cash flow, leverage and profitability have begun to stabilise, Fitch said.