Analysis: Will China’s Major Cities Propel a Housing Market Recovery?

By Xia Lei

Will China’s property market stabilize in 2025? The answer largely depends on first-tier cities, whose market confidence stems from their strong economies, ability to attract talent and international competitiveness.

Since the beginning of 2025, the real estate market in Beijing, Shanghai, Guangzhou and Shenzhen has shown remarkable resilience. In January, 2.88 million square meters of new homes were sold across these cities. Adjusted for the Spring Festival holiday, this represents a 16% year-on-year increase. Shanghai led with 1.08 million square meters in sales.

In the 20 days following the Spring Festival holiday in February, new home sales fell by 10% compared with the same period in 2024. Shenzhen and Shanghai, however, maintained relatively high market activity, with year-on-year growth of 37% and 4%, respectively, while Beijing and Guangzhou saw declines of 24% and 26%.

The pre-owned home market also showed signs of recovery. In January 2025, sales in Beijing, Shanghai and Shenzhen totaled 3.36 million square meters, a 45% year-on-year increase. In the 20 days following the holiday, pre-owned home sales in Beijing, Shanghai and Shenzhen increased by 27% compared with the same period in 2024, indicating a sustained recovery.

Home prices in the cities are stabilizing. Data from the National Bureau of Statistics showed that new home prices in these cities continued to rise by 0.1% month-on-month in January. Pre-owned home prices increased by 0.1% month-on-month, marking the fourth consecutive month of growth.

The big cities attract homebuyers through their robust economies, abundant job opportunities, top-tier amenities, and access to high-quality healthcare and education. Three critical factors affect the release of this demand: eligibility to buy, affordability and willingness to purchase.

Homebuying eligibility is a key factor, largely shaped by city-specific policies such as purchase restrictions. First-tier cities have made progress in easing these rules. Guangzhou has completely removed its purchase restrictions and while other cities still impose certain limitations, these are expected to be further relaxed in the future.

Affordability is largely shaped by credit conditions, including down-payment ratios and mortgage interest rates. In first-tier cities, where house prices are high, homebuyers rely more on credit. Recently, down-payment requirements have been lowered, with first homes now requiring only 15% in these cities, while second-home ratios vary. Mortgage interest rates have also dropped to relatively low levels.

Homebuying willingness is largely shaped by psychological factors, including expectations about housing price trends, the timely delivery of pre-sale homes and property quality. In cities such as Beijing, Shanghai and Shenzhen, the pre-owned housing price has maintained a rising track since October 2024, positively influencing buyer sentiment. Concerns over pre-sale homes being delivered on time have eased, especially with the government’s recent push to ensure they are. Improving design standards in first-tier cities has seen buyer confidence in housing quality grow, further enhancing the appeal of new properties.

The demand structure shows a clear divide: upgraders drive new home sales, while smaller units dominate the pre-owned market. In first-tier cities, new home sales are increasingly concentrated in large units with space ranging from 90 to 120 square meters. The pre-owned home market continues to cater to essential housing needs, with smaller units still the primary focus.

Land supply in first-tier cities continued to shrink in 2024, leading to an expected drop in the supply of new homes. According to data from the China Index Academy, 175 parcels of land were listed for sale in the four cities in 2024, down 20.5% year-on-year. Of these, 156 parcels were sold, marking an 18.3% year-on-year drop, with the total transaction value falling 34.2% to 405.3 billion yuan ($56 billion).

In 2025, efforts to address supply challenges are expected to focus on three areas: First, accelerating the use of special government bonds to buy idle land and reducing inventory. Second, increasing the acquisition of existing commercial housing to stabilize the market while expanding affordable housing to meet the needs of low- and middle-income urban workers. Third, boosting the supply of upgraded, high-quality homes to cater to growing demand.

Buoyed by the strong start to the year and March’s seasonal sales peak, the real estate market’s “spring surge” is expected to continue. First-tier cities will lead this recovery, helping stabilize the market and reversing its downward trend.

First-tier cities still have room to ease policies, with the relaxation of purchase restrictions being a priority. These cities could expand non-restricted zones and reduce the social security or tax payment requirements for eligible homebuyers, better aligning with buyers’ housing needs.

The impact of easing purchase restrictions is significant. When all four first-tier cities relaxed these policies in late September 2024, new residential sales surged by 45% quarter-on-quarter in the next three months.

Reducing transaction taxes is another critical step. Eliminating the personal income tax levy on pre-owned home transactions, for example, could provide buyers with more flexibility, lower costs and stronger support for upgrading homes, ultimately promoting healthier growth in the property market.

Xia Lei is the chief economist of Sealand Securities Co. Ltd.

This article has been edited for length and clarity.

Contact editor Han Wei (weihan@caixin.com)

caixinglobal.com is the English-language online news portal of Chinese financial and business news media group Caixin. Global Neighbours is authorized to reprint this article.

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