Core Summary
The current Chinese real estate market exhibits a significant divergence: first-tier cities are showing some recovery due to policy incentives, while the national market as a whole remains sluggish. Residents have a strong desire to repay their mortgages early, leading to stagnation or even negative growth in mortgage lending. Even in industries that are performing well (such as Hefei), this has not led to a revival in the local real estate market or consumer spending. Although there are signs of inventory reduction, the real estate market will never return to its previous golden age.
I. Hot in First-Tier Cities vs. Cold Nationwide: A Chasm Between the Two
The real estate markets in first-tier cities and the rest of the country seem like two different worlds:
- Recovery in First-Tier Cities: In July, second-hand housing prices in four first-tier cities increased by 0.2% month-on-month (for five consecutive months), while new housing prices remained stable (with only a slight decrease of 0.3% in Beijing). After Beijing introduced new policies in August (raising the maximum mortgage loan amount to 3.4 million yuan and lowering the interest rate to 2.6%), the number of viewings for second-hand homes increased by 40%, and transaction volumes rose by 10%. In Shanghai, a land auction generated 23.5 billion yuan in one day, with the Yangpu Binjiang plot attracting 200 bids and setting a new record for land prices.
- National Market Stagnation: Only 15.7% of cities reported price increases in July (compared to 20.7% in June); excluding first-tier cities, the proportion of rising prices is nearly zero. Nationwide, new housing sales amounted to 4.27 trillion yuan in the first seven months, which is more than half of the peak of 10.5 trillion yuan in 2021, and residential sales decreased by 13.2% year-on-year.
In short: a few major cities are showing signs of recovery, while most areas are still struggling.
II. Why Are Residents Repaying Their Mortgages Early? The Pressure of Interest Rates
Central bank data shows that in July, long-term loans (mainly mortgages) from residents experienced negative growth of 120.2 billion yuan, compared to a mere 101.0 billion yuan increase in the first seven months of the year (1.06 trillion yuan in the same period last year). The reason is simple:
- Financial Returns Lag Behind Mortgage Interest Rates: It’s difficult to find financial products offering returns higher than 2% from banks, while mortgage interest rates are at a historic low of 3.1%. Repaying 1 million yuan of a mortgage early can save more than 30,000 yuan in interest per year—saving money is essentially earning money.
- Low Lending Desire: Even with low interest rates, people are less inclined to borrow for home purchases. The old rule that “lower interest rates lead to more loans” no longer applies; mortgage applications have actually decreased despite the historically low rates.
This indicates that residents lack confidence in the future of the real estate market and prefer to reduce their financial burdens rather than leverage their homes.
III. A Strong Industry Does Not Necessarily Mean a Strong Real Estate Market: The Exception of Hefei
Hefei, with its strong tech industry (such as the “Longsanjin” sectors), has become the fastest-growing city in China, with a GDP growth rate of 8.57% and an industrial value increase of 25.6%. However, this has not translated into a boost for the local real estate market or consumer spending:
- Real Estate Market Sluggish: In July, both new and second-hand housing prices fell by 0.2% month-on-month, with second-hand housing prices declining by 6.4% year-on-year. New housing sales decreased by 14% from January to July, and the inventory digestion period is 15.6 months (indicating oversupply). There were 104,000 second-hand homes for sale, with buyers having significant bargaining power.
- Weak Consumption: Retail sales grew by only 0.6% in the first half of the year (half of the national average), and consumption by large businesses decreased by 11.7%, suggesting that people are hesitant to spend money.
Why? Because the benefits of the tech industry have not benefited the general population: the “Longsanjin” sectors employ only about 1/500 of Hefei’s population, and only 7,000 researchers receive stock-based incentives. Their purchasing power is not enough to drive the entire city’s real estate market. The old pattern of “strong industry → strong real estate market → strong consumption” no longer holds true.
IV. Policies and Inventory: The Market Cannot Return to the Past, but There Is Hope for Clearing
Policies are being implemented to stimulate the market, but their effects are limited:
- Loosening of Housing Fund Policies: Beijing increased the mortgage loan amount, and the State Council revised the housing fund regulations (interest rates are now determined by the State Council, which could further reduce them), but whether this will boost demand is uncertain.
- Signs of Inventory Reduction: The area of unsold commercial housing decreased by 0.8% year-on-year, and the inventory digestion period for properties under three years is about 8.6 months. If development investment and sales continue to decline, inventory could be cleared quickly, but this is a conservative estimate.
The key conclusion is that the real estate market will never return to its pre-2021 boom. The future will be one of divergence and clearing: a few core cities will stabilize, while most areas will slowly digest their inventory, and residents will shift from speculative buying to more rational housing decisions.
Conclusion
The Chinese real estate market is going through a cycle of “reality and adjustment”: the recovery in first-tier cities is genuine, but the nationwide sluggishness is also real. Policies are being adjusted to stimulate the market, but residents’ choices (such as early mortgage repayments and avoiding home purchases) are shaping market expectations. In the future, the real estate market will no longer be the main driver of the economy; instead, it will serve as a stabilizer. The tech industry is the new engine of growth, and the real estate sector must adapt to this new reality.