Searching for stability – the future of Chinese real estate

Once a key engine of the Chinese economy, real estate now presents a headwind to sustainable growth. Amid this structural shift, property developers have faced the most challenges, as their business model shifts from mass producing homes and more towards managing existing assets.

It marks an end of an era for the property sector, and the Chinese economy more broadly, and the start of a more nuanced future for developers.

More than three years into the downturn, current market conditions in the housing market remain stretched. The official sales data suggests that the market has halved from its peak, said Xin Yang, Chief Financial Officer at property developer CIFI Holdings, who was speaking at the HSBC 12th Annual China Conference.

Such a contraction has left all market participants, from state-owned enterprises to private developers, navigating a painful transition. Mr. Yang described the process as a necessary correction, similar to historical adjustments seen in Japan in the US.

The transition period for the property market presents opportunities for investors.

Current market prices present good value for core investors focused on cash flow and stable yield, said Randolph Zhao, Managing Director, Real Estate Equity, KKR. There is strong demand for income-generating assets among domestic institutional investors. He pointed to increased transaction volume of commercial real estate in first-tier cities, which grew in the first half of 2025, led by retail and rental housing assets.

The activity was primarily driven by domestic insurance companies that are attracted to the wide spread between stable property yields and low government bond rates. These investors represent an appetite for RMB-denominated assets that provide yield.

Within the commercial property segment, the panel discussed how there is strong potential in consumer-facing assets like shopping malls. High-quality rental apartments are very scarce, as these sought-after assets have stable occupancy rates and can be used to house young professionals.

For private developers, the future is also asset light. The pivot will be a shift away from balance sheet-heavy investment towards managing existing assets, branding, and services. There will not be a model that fits all companies. Rather, success will depend on prior experience in the target segment, along with a proven track record and the right timing for market entry.

The panel gave the rental apartment market as a segment that only became viable after the government introduced preferential policies for land taxes and financing. Elderly care could be the next segment to receive similar state support, underscoring a potential future opportunity for developers, they said.

Government policy is always a key consideration for any investment into Chinese real estate. The current focus is whether Beijing can bring the declining market to a halt.

The panel agreed that while significant policy measures have been introduced, more could be done to stabilise the market and restore confidence. There could be robust demand-side policies, for example: introducing reforms to the tax system to boost household purchasing power or implementing direct fiscal subsidies to reduce mortgage rates.

Another potential measure would be for local governments to pause land sales in oversupplied cities, which would help send a powerful signal and rebalance the market. The logistics sector presents a cautionary tale, as a surge in government land supply led to oversupply and plummeting rents.

On the financing side, further interest rate reductions would help developers. From an international investment perspective, clear national guidelines on land lease renewals for core assets would greatly enhance liquidity and investor confidence.

While the period ahead remains challenging, the panel concluded that for the companies that understand the new rules of the game and who can navigate the structural shifts, opportunities will emerge from the downturn.

The future of Chinese real estate will be less about spectacular growth and more about sustainable, managed returns, demanding a level of sophistication and patience that was previously unnecessary. The industry’s future belongs not to the largest speculators, but to the most prudent and innovative operators.