The current situation of the real estate market is: new houses have prices but no sales, while second-hand houses increase sales by lowering prices.

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The current state of the real estate market is: new homes have prices but little transaction volume, while second-hand homes are being sold by lowering prices to encourage transactions.

Since the beginning of the year, the transaction area of new homes has remained under pressure. From January to September, the sales area of commercial residential properties fell by 5.6% year-on-year; in September it declined by 11.4% year-on-year, a widening drop compared to the 9.7% decrease in August. The sales area of the top 100 real estate enterprises from January to September was 120 million square meters, a year-on-year decline of 20.1%. In September, it fell by 14.7% year-on-year, an improvement compared to the -31.3% in August.

New home residential prices continue to rise. According to data from the China Index Academy, in September, new home residential prices in 100 cities rose by 2.7% year-on-year, and by 0.1% month-on-month. By city tier, new home prices are significantly differentiated, with first- and second-tier cities and third- and fourth-tier cities showing an “uneven” situation. In September, the year-on-year growth in first- and second-tier cities was 4.0% and 0.6% respectively; the month-on-month growth was 0.2% and -0.1% respectively; for third- and fourth-tier cities, year-on-year and month-on-month growth rates were -1.2% and -0.3% respectively.

In contrast to the new home market, since the beginning of the year, the second-hand home market has maintained an increase in volume and a drop in prices.

From January to September this year, the transaction area of second-hand homes in 18 sample cities increased by 17.1% year-on-year; in September, it grew by 29.7% year-on-year, a significant improvement compared with the 3.1% growth rate in August. At the same time, second-hand home prices remain under pressure. In September, second-hand residential prices in 100 cities fell by 0.7% month-on-month, marking 41 consecutive months of month-on-month decline; the year-on-year growth rate was -7.4%, with the decline slightly widening from August. Although second-hand residential prices in cities of all tiers are in decline, second-tier cities have seen the most significant drops. In September, second-hand residential prices in first-, second-, and third/fourth-tier cities declined by -0.6%, -0.9%, and -0.8% month-on-month, and -4.0%, -8.3%, and -7.9% year-on-year, respectively.

Therefore, the crux of the current new home market lies in “volume,” while the crux of the second-hand home market lies in “price.”

The sales area of new residential properties in China has fallen from 1.57 billion square meters at the peak in 2021 to 810 million square meters in 2024, and is expected to drop further to 750 million square meters in 2025. Although new home transaction areas have continued to shrink since 2022, the contraction in real estate demand is not mainly due to the slowing urbanization process and aging population.

If second-hand home transactions are included, the total transaction area of new residential + second-hand residential properties in China sharply dropped from 1.93 billion square meters in 2021 to 1.57 billion square meters in 2022. In 2023 and 2024, it has basically stabilized at about 1.5 billion square meters and is expected to remain at this level in 2025.

In fact, the sharp contraction in the total transaction area of new and second-hand homes in 2022 compared to 2021 reflects the decline of speculative demand. Without speculative demand and only real residential demand, housing demand is a slower-moving variable determined by factors such as total population, urbanization, per capita housing area, and depreciation/renewal. Large short-term fluctuations are unlikely, which is also why the total residential demand has stabilized at 1.5 billion square meters over the past three years.

According to our estimates, before 2030, without considering speculative demand, new housing demand (new + second-hand) will remain roughly stable at around 1.4 billion square meters, and has likely reached a steady level now.

Therefore, the contraction of demand is not the crux of the current new home market; the continued shrinkage in the transaction area of new homes is more due to changes in transaction structure, that is, the accelerated substitution of new home transactions by second-hand homes.

In 2021, the proportion of second-hand home transactions in China was only 19%. As price caps for new homes are lifted, some developers encounter problems, and the real estate market shifts from growth to maturity, the share of second-hand transactions increases year by year, reaching 46% in 2024. It is expected to further rise to around 50% in 2025. When the transaction structure stabilizes and the share of second-hand transactions reaches a reasonable range, the “volume” of new homes will stop falling.

In addition, the pressure on new home sales also comes from the rapid iteration of “good houses” causing buyer hesitation, as well as a tendency to postpone purchases due to insufficient high-quality supply in core areas.

Since last year, “new quality homes” with an efficiency ratio of 100% have been favored by buyers, but with the launch of projects with ratios of 120% and 140% this year, new standard products have become “old standard,” which has increased buyer hesitation. According to our estimates, in 2025, the sales area of new home residences will remain at 750 million square meters, new construction area is expected to drop to 600 million square meters, and completed area will fall to 500 million square meters. Since the beginning of this year, the broad inventory of new homes has been declining by about 20 million square meters per month on average; it now stands at 1.37 billion square meters, close to the level at the beginning of 2010. As new demand digests redundant inventory, the market will naturally stabilize and clear out the excess.

Compared with the new home market, the overall supply-demand imbalance in the second-hand home market is more significant. The pressure of sell-offs brought by the increase in new listings is the reason for the continued decline in second-hand home prices. Since March, the volume of second-hand home listings has increased rapidly, followed by a faster drop in second-hand home prices. For the second-hand market, the bear force comes from increased listings. As price adjustments are more flexible than new homes, in the face of supply-demand imbalance, lowering prices to encourage trades becomes inevitable.

But the fastest growth phase of second-hand listings is over, and the second-hand market has entered a “de-stocking” phase. According to data from 58 Anjuke Research Institute, the volume of second-hand home listings in 100 cities has declined since July, and the number of new listings in all city tiers has begun to drop. In August, new second-hand listings in first-tier, new first-tier, and second-tier cities were 8,200, 6,300, and 2,700 units, down by 200, 100, and 100 units month-on-month, while third- and fourth-tier cities maintained 900 units, unchanged from the previous month. This means the current second-hand market has entered a stock game stage, and after “one last drop,” it is expected to stabilize.

Authors: Song Xuetao, Zhang Xinyue. Source: Xuetaohongguan Notes, Original title: "The Crux of the Current Real Estate Market"

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