Hello! I'm your financial analyst friend. This in-depth report on the future of China's real estate market over the next 20 years is packed with a lot of information and very substantial data. To make it understandable even without having to wade through complex economic models, I've translated this long article into plain language.
Here are the key conclusions in a nutshell: Don't expect housing prices to continue rising as they have in the past 20 years—buying property has stopped being a surefire investment. Over the next 20 years, houses will shift from being a scarce commodity to an ordinary consumer good, and in some cases, even a burden. Only a very small number of properties in key locations will retain their value; most houses (especially old, dilapidated ones in remote suburbs or in cities with declining populations) will experience a long-term decline in value and a lack of liquidity (it will be difficult to sell them).
Now, let me break down the report into five key points to help you fully understand the underlying logic:
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1. Fewer people are buying houses, and more are selling them (the “population scissors effect”)
This is the most fundamental reason. Houses are for living in, and if no one buys them, prices can't stay high.
- Fewer buyers: The main group of homebuyers used to be young people aged 25-45. This demographic is shrinking from 380 million to less than 320 million by 2040. Even more concerning is the low birth rate (only 7.92 million newborns in 2025), which means there will be fewer potential buyers in the future.
- Influx of inherited properties: This is an often-overlooked source of supply. The Generation 60s and 70s in China owns the majority of properties. As they age, a large number of properties will enter the second-hand market through inheritance.
- Calculation: Although the claim of 15 million properties being released at once may be exaggerated, with over 10 million deaths per year and an average of 2-3 people per household, there will still be several million new inherited properties each year.
- Result: There are not enough young buyers, while the number of properties left by the elderly is increasing. It's like a mall with fewer customers but more products on the shelves—discounts and promotions are inevitable.
2. Harder to find jobs and stagnant wages—who would take on heavy debt to buy a house? (Technology and income constraints)
In the past, people were willing to take on 30-year mortgages because they believed their wages would keep rising. But technology is changing this expectation.
- AI and robots taking jobs: This is not science fiction; it's happening. AI can perform tasks like coding, writing, customer service, and basic data analysis quickly and efficiently. McKinsey predicts that by 2030, 220 million Chinese people may need to change jobs, and the starting salaries for white-collar jobs will decrease.
- Impact on blue-collar workers: Autonomous trucks, unmanned warehouses, and drone deliveries are replacing truck drivers, packers, and couriers, which are key groups for many families buying houses.
- Weaker income expectations: When people fear job instability or wage growth falling behind inflation, the rational choice is to not borrow money.
- Data support: The household debt-to-income ratio has dropped from 61.4% to 59.4%, and mortgage balances are even showing negative growth. People are starting to pay off their loans early because having cash is considered safer than owning property.
3. Houses are no longer the “ever-rising” asset they used to be; holding them is costly (costs and rent-to-sale ratios)
Buying a house used to be an investment, but now it's more like buying a consumer good with high maintenance costs.
- Unreasonable rent-to-sale ratios: The internationally accepted range for a reasonable rent-to-sale ratio is 3%-5% (i.e., housing prices should be 20-30 times the annual rent).
- In China, the average rent-to-sale ratio in 100 cities is only 2.4%, and in first-tier cities, it's even 1.5%-1.9%.
- What does this mean? If you buy a house to rent it out, it will take 48 years to recoup your cost. Moreover, the yield on 10-year government bonds is around 1.86%, so renting out a house may not be as profitable as investing in bonds.
- Rising costs: Property maintenance is expensive (e.g., replacing elevators or repairing buildings). The expected introduction of property taxes will further increase costs, forcing some homeowners to sell their properties and increasing the supply.
4. Mortgage defaults and foreclosure sales: An accelerator of falling housing prices
This creates a vicious cycle and is the most dangerous signal at the moment.
- Negative assets: Many people who bought houses around 2021 are now facing a situation where the market value of their properties is lower than their loans. Selling results in losses, and continuing to pay interest means defaulting on the loans.
- Impact of foreclosure sales: Banks auction off these properties, typically at 70% of their appraised value, and if they don't sell, the second auction is at 80% of the appraised value.
- Scary numbers: In 2025, there could be 719,000 foreclosure sales nationwide, with an average transaction price of only 74% of the appraised value.
- Chain reaction: Low sale prices in one area lower the expectations for nearby properties, leading to further price drops.
5. How will things differ in the next 20 years? (Learning from Japan and urban differentiation)
Looking at Japan, after the housing bubble burst in 1991, land prices in Tokyo dropped by 60%-70% and have not fully recovered. China is undergoing a similar long-term adjustment, but with significant structural differentiation:
- First-tier core cities (e.g., inner Beijing, Shanghai): Prices will stabilize after a slight decline and then recover moderately.
- Reason: Continuous population inflow and resource scarcity give these areas strong resistance to price drops. These properties still have both financial and residential value.
- Strong second-tier cities (e.g., Hangzhou, Chengdu): Prices will stabilize after a period of fluctuation.
- Reason: Local industries and demographics play a role; core areas will perform better than remote suburbs.
- Third-tier cities and counties: Prices will continue to decline due to net population loss, an influx of inherited properties, aging buildings, and a shortage of buyers.
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Practical advice for everyone:
1. Don't leverage heavily in hopes of a price rebound: Now is not the time to buy at low prices; instead, reduce your debt.
2. Understand the nature of housing: Houses are first and foremost for living in, and only secondarily as an investment. If you need a place to live, buy in core areas with good facilities; if you're investing, be cautious except for top-tier properties.
3. Be wary of old, dilapidated properties and remote suburbs: These types of properties are at the highest risk of depreciation in the next 20 years.
4. Pay attention to the rent-to-sale ratio: Calculate the rent-to-sale ratio before buying. If it's lower than the return on bank investments or government bonds, the risk is high.
5. Liquidity is key: In cities with declining populations, houses can become worthless assets. Buy in areas with a vibrant economy, industries, and good schools to ensure you can sell them when you need to.
In summary: The era of widespread housing price increases is over. The future will see significant differentiation. Choosing the wrong city or property could lead to a significant loss of value and difficulty in selling. Stay informed, control your debt, and that's the best strategy.