The first half of 2026 saw the real estate market continue its downward trajectory, with national trends diverging and property prices in high-tier cities showing signs of temporary stabilization. The market exhibited a pattern of "contraction on the supply side, moderation on the demand side," while industry risk management progressed steadily. What will the overall property market look like in the second half of the year? Will some cities achieve stability? Are the conditions ripe for a comprehensive market recovery? Can market risks be fully resolved? How will housing policy evolve? This article will explore these questions.
Market Continues to Bottom Out in First Half
Housing policies were further implemented and took effect. In the first half of 2026, domestic real estate policy consistently adhered to the core principle of "housing is for living in, not for speculation, with city-specific policies." Systematic supporting measures were introduced on both the supply and demand sides, balancing the release of rigid and improved housing demand with the stable transition of the real estate industry. The effects of these policies continued to materialize.
On the demand side, supportive policies in credit and taxation were advanced further. Over a hundred cities nationwide lowered down payment ratios, with most cities reducing the minimum down payment for first homes to 15% and for second homes to 25%. The central bank continued to guide mortgage interest rates to remain low. Policies for individual income tax relief on property swaps were extended, the period for VAT exemption on second-hand homes was shortened, significantly reducing transaction costs for families looking to upgrade. The VAT burden for second-hand homes sold within two years dropped by over 40%, with ordinary families seeing comprehensive tax reductions ranging from 20,000 to 100,000 yuan, and overall transaction costs falling by 35% to 65%. Nationwide tax reductions for the year approached 100 billion yuan, effectively easing the financial pressure on homebuyers.
On the supply side, the focus was on optimizing the housing supply structure. The "15th Five-Year Plan" for urban renewal was comprehensively promoted, with 257 billion yuan in central fiscal funds allocated for 2026. The renovation of old residential areas and the organic renewal of urban villages accelerated. In the first half of the year, over 25,000 old residential areas began renovation nationwide, and more than a thousand urban village renewal projects commenced, driving cumulative construction investment of approximately 1.4 to 1.5 trillion yuan, becoming a new growth point for the property market. The central bank's 300 billion yuan re-lending facility for affordable housing was implemented, with various regions promoting the acquisition and renovation of existing commercial housing. Based on the pace of agreements and disbursements by developers and financial institutions, the scale of re-lending for affordable housing implemented in the first half was around 80 billion yuan, used to convert idle housing into rental or shared-ownership housing, partially offsetting the downward pressure on commercial housing development investment.
Overall policy adhered to differentiated regulation and city-specific measures, avoiding large-scale stimulus. It used structural tools to stabilize demand, supplement affordable housing, and revitalize existing stock, promoting the parallel development of sales and rentals, as well as commercial and affordable housing, guiding the industry towards stabilizing market expectations. The supportive housing policies further implemented in the first half played a positive role in releasing housing demand and improving supply.
Residential sales showed marginal improvement. From January to May, the cumulative sales area of commercial housing nationwide fell by 10.8% year-on-year, while cumulative residential sales value dropped by 13.5%. Although the decline slightly widened compared to the end of 2025, it has steadily narrowed for three consecutive months. Regarding prices, in May, new home prices in 70 cities fell by 3.6% year-on-year, with the decline widening by 0.6 percentage points from the end of 2025. Second-hand home prices fell by 5.9% year-on-year, with the decline narrowing by 0.2 percentage points. The recovery in the second-hand market was stronger than in the new home market, with the restoration of market confidence in high-tier cities being a key factor in the marginal stabilization of national prices.
Benefiting from intensified and sustained demand-side policies, as well as the wealth effect from a stronger RMB exchange rate and increased capital market activity, the proportion of all-cash purchases in first-tier cities steadily increased, leading to price stabilization. In the first half, the share of all-cash transactions for second-hand homes in Beijing, Shanghai, and Shenzhen rose by 4 to 6 percentage points compared to the end of 2025, indicating a gradual strengthening of overall market resilience. The second quarter began to show characteristics of a narrowing overall decline, significant divergence by city tier, and second-hand homes replacing new ones as the core transaction segment.
The real estate supply side continued to contract. From January to May, cumulative real estate development investment fell by 16.2% year-on-year, indicating a continued weakening of investment willingness in the sector. The cumulative area of newly started construction fell by 22.6% year-on-year, with residential new starts dropping by 23.4%. Completed area also fell by over 20%. Developers generally scaled back new development, focusing on delivering existing projects and strictly controlling new inventory.
The land market contracted simultaneously, with the total transaction value of land in 100 cities falling by 24% year-on-year, a larger decline than at the end of 2025. Land supply scale shrank significantly, easing long-term supply-demand imbalance pressures and laying a foundation for medium-to-long-term market balance restoration.
Overall, as the housing sales market remains sluggish, developers' new sales pre-collections, personal mortgages, and income from previous sales are continuously decreasing, leading to tight cash flow. Developers generally adopt strategies of actively controlling inventory and compressing new supply, resulting in simultaneous declines in core indicators like land, investment, and new starts. Meanwhile, risk resolution and affordable housing construction are progressing orderly, and the supply structure is continuously optimizing.
Market K-shaped divergence is prominent, with significant differences across city tiers. In the first half, first-tier and strong second-tier cities stabilized first, with second-hand transaction volumes consistently exceeding new homes. In May, new residential prices in first-tier cities rose 0.2% month-on-month, while second-hand residential prices rose 0.4%. Online signings for second-hand homes in Beijing and Shanghai hit multi-year highs for the same period, with cumulative second-hand transactions in Shanghai up 31% year-on-year. Relying on population inflow and the wealth effect, core cities saw sustained release of upgrade and replacement demand, supporting market confidence. Conditions in strong second-tier cities diverged, with properties in well-equipped central areas showing slight recovery, while suburban areas faced high inventory, leading to overall sideways consolidation.
Constrained by continuous population outflow and high existing inventory, ordinary second-tier, third- and fourth-tier cities, and county-level markets continued to weaken, with prices continuing a downward trend and inventory digestion cycles remaining high. The transaction structure also showed clear divergence, with high-tier cities entering a stock market dominated by second-hand homes, while low-tier cities still rely on new home sales volume, lacking support from replacement demand. Overall policy support brought local improvement, but did not create a nationwide price surge. Differences in fundamentals like population, industry, and inventory became core drivers of market divergence.
Market supply and demand presented a new pattern of "contraction and moderation." Inventory slowly digested, and the inventory-to-sales ratio fell from high levels, indicating some repair in market balance. At the end of May, the national area of residential housing awaiting sale was 416 million square meters. The broad residential inventory-to-sales ratio (digestion cycle) was 21.4 months, narrowing by 1.8 months from 23.2 months at the end of December 2025. The clearance speed of stagnant housing stock accelerated in the first half.
By dimension, the inventory-to-sales ratio showed layered characteristics. First-tier cities, aided by demand release and steady supply-side reduction, had an overall residential digestion cycle of about 15 months, indicating improved supply-demand relations. Ordinary second-tier and third/fourth-tier cities had inventory-to-sales ratios exceeding three years. Although both supply and demand showed contraction, high inventory pressure remained prominent. Overall, supply compression combined with marginal demand repair led to a gradual decline in the inventory-to-sales ratio, with the industry gradually moving away from the old pattern characterized by "high supply, high inventory." However, the absolute scale of national inventory remains at a historically high level, and achieving market supply-demand balance will take time.
Real estate industry risk management continued to advance. From January to May, developers' financing sources fell by 20% year-on-year cumulatively. The sector's narrow macro leverage ratio dropped to 13.8%, down 0.7 percentage points from the end of 2025, indicating an active contraction of the high-leverage expansion model and a significant reduction in new disorderly defaults. Regarding debt restructuring, over 20 distressed developers have promoted market-based restructuring such as domestic and foreign debt extensions, debt-to-equity swaps, and asset disposals. The cumulative scale of implemented domestic and foreign debt restructuring reached about 1.2 trillion yuan, with some companies repaying over 10 billion yuan of related offshore debt. The overall conversion rate of implemented restructuring exceeded 85%, revitalizing quality assets over 32 billion yuan, providing solid funding support for debt fulfillment. Developers' overall asset-liability ratio slightly declined. Leading distressed developers generally extended debt maturities by 3 to 5 years, with comprehensive financing costs dropping by an average of 0.8 to 1.2 percentage points, effectively reducing financial expense outlays.
Progress in ensuring project delivery showed results. Relying on the national real estate financing coordination mechanism and relief fund support, the delivery progress of many projects aimed at ensuring completion exceeded 70%, significantly easing homebuyers' concerns about delayed handovers. Overall, the two core risks of developers' existing debt and stalled project deliveries are being steadily resolved, with risk mitigation entering a substantive implementation phase. However, third- and fourth-tier cities still face cyclical pressure in dealing with the existing debt of small and medium-sized developers and disposing of remote, inefficient assets. Risk clearance still requires continued and strengthened policy support.
In summary, in the first half, driven by policy, demand in some areas was released in phases, but endogenous momentum was not fully activated. Weak household income expectations and insufficient willingness to increase leverage constrained the concentrated release of rigid demand. The turning point in population urbanization has appeared, leading to a downward shift in the medium-to-long-term demand center for new homes. High inventory and population outflow in third- and fourth-tier cities are prominent, highlighting regional supply-demand structural divergence. The industry's supply-demand structure is gradually moving towards balance during the adjustment process, but tail-end risks still need to be cleared.
Structural Divergence to Intensify in Second Half
In the second half, real estate regulation will follow the general principle of "stabilizing the property market, preventing risks, and promoting transformation," with the characteristics of precision and structure becoming more prominent.
On the demand side, the "city-specific policy" regulation strategy will be continuously optimized, implementing differentiated support policies by city tier. The policy focus may tilt towards second-hand housing circulation and replacement demand, extending tax and fee reductions for selling old and buying new homes, and supporting credit measures for home swapping. First- and second-tier cities will continue optimizing down payment and mortgage credit tools to smooth the second-hand home replacement chain. Third- and fourth-tier cities and county-level cities with high inventory will focus on policies to control new supply and promote inventory reduction.
On the supply side, the focus will be on revitalizing existing stock and expanding affordable housing. Speeding up the implementation of urban renewal and urban village renovation, the utilization rates of re-lending for affordable housing and supporting special bond funds may increase. Regions will intensify efforts in acquiring and renovating existing commercial housing, cultivating new growth from the existing stock renewal industry. Risk management will deepen, with ensuring project delivery and debt restructuring for distressed developers becoming normalized, continuously mitigating delivery and debt risks.
The construction of long-term mechanisms will accelerate. Supporting policies such as the expansion of real estate investment trusts (REITs), the broadening of pilot programs for completed home sales, and the development of high-quality housing will be steadily introduced. These aim to standardize industry development across the entire chain of development, transaction, and holding, promoting the real estate industry's transition away from the old high-turnover model towards a new development model oriented towards people's livelihoods, existing stock operation, and long-term regulation.
A comprehensive, significant recovery in the real estate sales market is unlikely. It is estimated that national commercial housing sales area in 2026 will be about 785 million square meters, down approximately 11% year-on-year, a decline similar to the first half. Benefiting from the increased attractiveness of RMB assets globally, the proportion of all-cash purchases in first-tier cities may continue to rise. Upgrade and replacement demand is expected to be continuously released. Transaction activity in the second-hand market is likely to continue, remaining the main transaction segment in major cities. Influenced by medium-to-long-term factors such as the overall slowdown in urbanization, low growth in household income, and continued structural adjustment in low-tier markets, the real estate sales market in the second half still lacks the foundation for a comprehensive recovery. By the end of the first quarter of 2026, the leverage ratio of China's household sector was 59%, the lowest level since the second quarter of 2020 but still at a historical high over thirty years, indicating insufficient willingness for households to increase long-term leverage. The paper asset shrinkage caused by continuously falling housing prices has led to a significant rise in precautionary savings among households, with early mortgage repayments being common. A large-scale, concentrated home buying trend is unlikely to emerge in the second half.
Some cities show signals of temporary price stabilization. The trend of sales decline stabilizing and moderating suggests that prices are unlikely to fall sharply in the second half. It is estimated that by the end of 2026, the decline in national new commercial housing prices will be around 2%, and the decline in second-hand housing prices will be around 2.5%, narrowing by 2 to 3 percentage points respectively compared to the first half. Year-on-year price growth in first-tier cities may turn positive, with new home prices expected to rise 1% and second-hand prices 2% year-on-year. The main factors supporting the stabilization and recovery of prices in first-tier cities are the return of overseas funds, low inventory of available completed homes for sale, and rising land prices. By the end of May 2026, Shanghai's residential inventory was about 5 to 7 months. Although inventory levels in other first-tier cities are higher than Shanghai's, overall inventory in core urban areas of first-tier cities remains in a state of tight balance, with price competitiveness clearly more resilient compared to second- and third-tier cities.
Developers lack sufficient incremental funding support for liquidity. It is estimated that developers' funding sources for the year will be about 8 trillion yuan, down about 15% year-on-year. The slowing sales decline is unlikely to change the situation of declining operating income for developers. The pressure from asset impairment on existing commercial housing and idle land leads to a continuous reduction in self-raised funds and bank loans, resulting in very limited resources available for investment. In the second half, developers still face considerable debt repayment pressure. Calculations show that the maturity scale of developers' commercial bank loans, domestic credit bonds, and offshore dollar bonds accounts for about 30% of funds in place. Especially for private developers with relatively weaker qualifications, relying solely on themselves to seek non-bank financing channels with interest rates over 10% is very difficult.
Developers will remain cautious in land acquisition. The land market will continue the pattern of "increased heat for core plots, normalized failed auctions for suburban plots." In the second half, relevant authorities will continue to implement policies prioritizing the revitalization of existing stock. The scale of new residential land supply will continue to shrink, with land supply concentrating on core locations in main cities. Land acquisition resources for the top 100 developers will continue to converge towards the top 10 central and state-owned enterprises. Driven by financing cost advantages, central and state-owned enterprises will focus their layout on upgrade plots in first-tier and strong second-tier cities, with a small number of quality private enterprises participating in joint development. Overall, developers will continue to contract land reserve investment.
Prolonged construction cycles put pressure on investment. Typically, declines in new starts and construction area lead to weaker development investment with a lag of over two quarters. By the end of May 2026, the annualized area of new starts and construction was 6.37 billion square meters, equivalent to the level at the beginning of 2011 and continuing to slow. Annualized real estate development investment was 7.7 trillion yuan, equivalent to the level at the end of the second quarter of 2013. The continued contraction in construction activity means real estate investment will continue to be dragged down.
Accelerated funding for urban renewal and affordable housing will support real estate investment. It is expected that central matching funds will be disbursed faster, with special bonds and long-term loans from policy banks concentrated to support urban village renovation projects. The start and volume of resettlement housing in urban villages and saleable affordable housing will become the core support to offset the decline in commercial residential investment. Based on past experience, considering the pace of central fiscal disbursements, actual allocation of local government special bonds, and the scale of financial tools available from policy banks, it is estimated that in the second half, the total scale of funds available for urban renewal, urban village renovation, and re-lending for affordable housing will be about 1 trillion yuan. Comprehensive calculations estimate real estate development investment completion in 2026 to be about 7 trillion yuan, down approximately 15% year-on-year, with the decline narrowing by about 2 percentage points compared to the first half.
The current real estate market is gradually showing three core characteristics: intensified regional divergence, continuous improvement in supply-demand relations, and gradual clearance of industry risks.
First, regional divergence is intensifying further. First-tier and strong second-tier metropolitan areas, relying on population inflow and industrial support, are seeing a recovery in market confidence in core urban areas, with inventory digestion cycles returning to normal ranges. In contrast, the real estate markets of low-tier cities with continuous population outflow remain in a stage of reducing inventory through price concessions, with prices continuing weak adjustments. Ordinary second-tier cities may maintain a sideways bottoming trend, with subsequent sustained incremental demand support being difficult. Homebuyers will prioritize projects in quality urban areas. Third- and fourth-tier cities are likely to continue adjusting, with price reduction promotions being the mainstream sales strategy for local developers, and inventory clearance cycles being relatively long.
Second, market supply-demand relations continue to improve. On the demand side, the recovery in transactions in core cities leads to a narrowing sales decline, achieving marginal repair. On the supply side, after risk clearance, developers are cautiously acquiring land, contracting new starts, and prolonging construction cycles. With new supply actively contracting, the downward trend in investment is hard to reverse, and the overall inventory-to-sales ratio continues to decline from high levels. Given the low proportion of a few high-tier cities, achieving nationwide balance in total volume is extremely difficult. Attention should be paid to the new imbalance formed by sustained demand release and slow supply increase in first-tier and strong second-tier cities, which may drive significant price recovery.
Third, industry risks continue to be cleared. By the end of the first quarter of 2026, the balance of real estate development loans fell 5.1% year-on-year. It is estimated that the full-year balance for developers will decrease by 800 billion yuan, down about 6% year-on-year, with total developer financing remaining low. Financial institutions adhere to a strategy of layered, precise credit allocation to developers, with total volume no longer expanding and structure continuously optimizing. Credit resources like the developer white list are strictly incorporated into central bank supervision, raising industry operational thresholds. The launch of commercial real estate REITs will help promote the orderly resolution of risks for developers with existing assets. The industry's balance sheet will continue to repair steadily, small and medium-sized highly leveraged developers will accelerate their exit, and incremental defaults will significantly converge.
Suggestions for Improving Long-Term Real Estate Regulation Measures
Considering current development trends and market shortcomings, to consolidate and develop the achievements of the market bottoming, resolve structural contradictions, and promote stable industry transformation, it is suggested to improve long-term real estate regulation measures from five aspects.
First, deepen precise regulation with city-specific policies, establishing a tiered demand support framework. For first-tier and strong second-tier cities, focus on optimizing replacement policies, lowering second-hand housing provident fund interest rates for second homes, and increasing loan quotas to fully release improved housing demand.
Second, improve the second-hand housing circulation mechanism, continuously implement tax and fee reductions for replacements, simplify transaction procedures, and build digital transaction platforms. Introduce special subsidies for rigid demand and multi-child families to unblock bottlenecks in existing housing circulation and promote market transformation towards quality improvement of the existing stock.
Third, increase funding for urban renewal and affordable housing construction, make good use of special bonds and policy loans, steadily advance the renovation of urban villages and old residential areas, expand the scale of acquiring and converting existing commercial housing, and stabilize the foundation of real estate investment.
Fourth, accelerate the expansion of pilot programs for completed home sales, tighten supervision of pre-sale funds, promote the development of green and smart housing, improve supporting rules for real estate REITs, and solidify the dual-track system of commercial and affordable housing.
Fifth, implement tiered financing management for developers, implement a financing white list for quality developers, reduce financing costs for leading stable enterprises, accelerate debt restructuring for distressed developers, strictly control new credit for high-risk entities, and repair the overall credit of the industry.
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