Goldman Sachs recently issued a report forecasting that the property markets in Shanghai and Shenzhen are expected to bottom out by the end of 2026, with housing prices likely to rise by 15% between late 2025 and late 2028. This optimistic outlook has quickly sparked market debate: has the property market truly reached a turning point?
Positive signals are accumulating. On one hand, Hong Kong’s property market has shown early signs of recovery, while secondary housing transaction volumes in Shenzhen and Shanghai have surged significantly. Some institutions express confidence that the market will stabilize after a contraction in supply. Data from the National Bureau of Statistics indicate that the decline in sales area of commercial housing narrowed in the first quarter, and the area of unsold commercial housing recorded its first drop in 51 months. People's Bank of China data also show that medium- to long-term household loans increased by 460.7 billion yuan in the first quarter.
On the other hand, bank financial reports reveal that by the end of 2025, the outstanding balance of personal housing loans at the six major state-owned banks had all contracted, with a combined decrease of approximately 700 billion yuan year-on-year. The trend of early mortgage repayments has not yet subsided.
Several industry professionals interviewed remain cautiously optimistic about mortgage risks. Experts note that the next phase requires close monitoring of changes in households’ repayment capacity and willingness, which are influenced by income expectations and housing price trends. If expected losses increase further, some banks may need to raise provisions for impairment.
Inventory pressure is easing, and sales data show improvement. Goldman Sachs analysts suggest that the real estate markets in Shanghai and Shenzhen may bottom out earlier than other first- and second-tier cities by 6 to 24 months. Wang Yi, a Chartered Financial Analyst at Goldman Sachs, believes that Shanghai and Shenzhen demonstrate the strongest competitiveness across four key drivers of housing recovery: demographics, income levels, affordability, and supply. Although both markets lack positive holding returns—as rental yields remain below mortgage rates—the spread between rental yields and mortgage rates has tightened to its lowest level in a decade. Additionally, similar to Hong Kong, potential wealth effects from a recovering stock market could serve as a key catalyst.
Changes in supply also support this outlook. CITIC Securities noted in a research report that, influenced by policy measures and base effects, although real estate development investment is expected to decline throughout 2026, the rate of decline should narrow month by month. A significant reduction in available new housing inventory may help stabilize the residential market.
According to recent data from the National Bureau of Statistics, the area of unsold commercial housing stood at 786 million square meters by the end of March, down 0.1% year-on-year. Of this, unsold units under three years old totaled 590 million square meters, a decrease of 1.8%. Yan Yuejin, Vice President of the Shanghai E-House Real Estate Research Institute, stated that the current cycle of inventory accumulation began in July 2021 and has persisted for 51 months. The first decline in inventory in March this year, with a clear downward trend, indicates a qualitative easing of inventory pressure.
Recent discussions about the property market have intensified as some regions show early signs of recovery. Goldman Sachs statistics indicate that Hong Kong housing prices have rebounded 8% from their low in March 2025, after falling 28% from their peak in September 2021. In comparison, prices in Shanghai and Shenzhen have declined 39% and 41% from their peaks, respectively, but have seen limited recovery this year, rising only 1% from lows in January 2026.
This year, transaction volumes in cities like Shanghai and Shenzhen have shown notable changes. Data from the Shanghai Real Estate Transaction Center show that from April 6 to April 12, the number of online secondary housing transactions reached 7,342 units. On April 11 alone, transactions hit 1,632 units, a five-year high for single-day online transactions in Shanghai. According to the Shenzhen Real Estate Intermediary Association, the city recorded 7,225 secondary housing transactions in March, a surge of 151% month-on-month.
First-quarter property sales data also reflect improvement, with early signs of a "spring warm-up" trend. National Bureau of Statistics data show that in the first quarter, national sales area of new commercial housing fell 10.4% year-on-year to 1.95 billion square meters, while sales value dropped 16.7% to 1.73 trillion yuan. The rate of decline narrowed compared to January-February figures.
However, compared to the rebound in secondary housing transactions, changes in banks’ outstanding personal housing loans remain subdued. Disclosed data indicate that the mortgage market has not yet shown clear signs of broad recovery.
Based on published financial reports, the total outstanding personal housing loans at the six major state-owned banks exceeded 25 trillion yuan by the end of 2025, down about 700 billion yuan from the end of 2024.
Specifically, China Construction Bank led with 5.99 trillion yuan in outstanding personal housing loans, followed by Industrial and Commercial Bank of China with 5.88 trillion yuan. Agricultural Bank of China and Bank of China reported balances of 4.82 trillion yuan and 4.57 trillion yuan, respectively. Postal Savings Bank of China and Bank of Communications both had balances below 2.5 trillion yuan, at 2.37 trillion yuan and 1.44 trillion yuan, respectively.
During the same period, all six major banks reported negative growth in personal housing loan balances. Wind data show that Postal Savings Bank of China saw the smallest decline at 0.37%, while Bank of Communications and Bank of China fell 1.65% and 1.89%, respectively. Industrial and Commercial Bank of China, Agricultural Bank of China, and China Construction Bank experienced larger declines of 3.41%, 3.38%, and 3.18%, respectively.
Looking at all listed banks, the trend of "de-real estate" in credit structure continues. In 2025, banks further reduced exposure to real estate-related risks. Kaiyuan Securities research indicates that the proportion of real estate loans—both corporate and residential mortgages—at state-owned banks declined to between 21.2% and 28.2%. On the corporate side, banks increased lending to manufacturing, infrastructure, and small businesses while adopting more cautious approaches to corporate real estate credit, possibly raising standards for new loans. On the retail side, constrained by household income expectations and early repayment behavior, mortgage growth remained weak, prompting banks to reduce high-risk exposures. Some banks have shifted retail resources toward non-property sectors such as consumer loans and business loans.
A marketing executive at a Shenzhen property developer told reporters that although inquiries have increased, few have translated into loan applications, as customers remain cautious. "Overall, the situation feels similar to the second half of 2024," the executive noted.
The executive observed that while more people are visiting properties and making inquiries, potential buyers hesitate at the loan application stage due to uncertainties about income expectations and housing price trends. From property viewings to signing contracts and applying for loans, customers may drop out at any stage.
A business manager at a major state-owned bank in southern China noted that early mortgage repayments continue to occur regularly, though not necessarily concentrated in specific periods. Inquiries about early repayments are common, especially around holidays and year-end bonus seasons.
Nevertheless, first-quarter data show signs of recovery. People's Bank of China data reveal that yuan-denominated deposits increased by 13.73 trillion yuan in the first quarter, with household deposits rising by 7.68 trillion yuan. Yuan-denominated loans increased by 8.6 trillion yuan, with household loans up by 296.7 billion yuan. Short-term household loans fell by 164 billion yuan, while medium- to long-term household loans rose by 460.7 billion yuan.
Statements from bank executives corroborate this trend. Zhou Wanfu, Vice President of Bank of Communications, stated during an earnings call that mortgage applications have increased noticeably since March. "This could signal stabilization in the property market. If this continues, mortgage growth may turn positive this year, helping retail loans achieve expected growth targets," he said.
Yao Mingde, Vice President of Industrial and Commercial Bank of China, projected that loan yields would continue to decline in 2026, but at a significantly slower pace. Since the beginning of the year, new loan rates for corporate and personal housing loans have shown signs of stabilization.
Amid uncertain signals of property market stabilization, whether bank mortgage risks have peaked remains a key market concern.
Kaiyuan Securities research indicates that in the second half of 2025, the coverage ratio for expected losses on personal mortgages declined rapidly. Some banks reported increases in non-performing mortgage balances and expected losses, while reducing impairment provisions—likely due to efforts to smooth profits and write off bad debts. This suggests that dynamic risks in the mortgage sector are still unfolding.
Liu Chengxiang, Chief Banking Analyst at Kaiyuan Securities, analyzed mortgage risks based on three factors: exposure at default (EAD) and client structure, where concentration in low-default probability segments has generally increased; average probability of default (PD), which remains stable but edged up slightly, ranging between 1.7% and 3.0% at state-owned banks; and average loss given default (LGD), which has risen broadly. This trend reflects systemic pressure on recovery: first, collateral values are under pressure; second, recovery cycles have lengthened, with judicial auctions and restructuring negotiations taking more time, eroding recovery rates.
"The next phase requires close monitoring of changes in households’ repayment capacity and willingness, which hinge on income expectations and housing prices. If expected losses rise further, some banks may need to increase impairment provisions," Liu noted. He expressed optimism that the property market would stabilize in 2026, adding that if housing prices do not fall significantly further, the current mortgage risk outlook can be viewed with cautious optimism.
The market also anticipates further policy support. Among recent discussions, whether mortgage interest subsidy policies will expand to more cities has been a frequent topic.
Internationally, several countries and regions have implemented housing credit support policies. Examples include Hong Kong’s "Home Loan Interest Deduction," low-interest loans for U.S. veterans and the Home Affordable Modification Program (HAMP), and long-term fixed-rate loan products offered by Japan’s Government Housing Loan Corporation. These policies ease homebuyer burdens through interest subsidies, tax deductions, or favorable financing. Domestically, several cities have already piloted home purchase subsidy policies.
Li Yong, an analyst at Soochow Securities, pointed out that monitoring data from pilot cities demonstrate that mortgage interest subsidy policies have significantly stimulated market demand and stabilized expectations in the short term. These policies have reduced early mortgage repayments and alleviated some pressure on banks from narrowing net interest margins. However, the policy effects are notably "pulse-like," characterized by short-term and volatile impacts.
Li further emphasized that subsidy policies should be regarded as tactical tools effective in specific phases. Their ultimate efficacy depends on whether they can synergize with supply-side reforms and macroeconomic income improvements to steer the market toward a new equilibrium.
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