Regional polarization and rising inventories in China's property market, with sluggish housing starts

「Although export-oriented companies in the automotive and IT-related sectors have remained strong in China, real estate-related companies continue to face difficult conditions. The youth unemployment rate has remained above 20%, and sluggish consumption has also persisted.」

「China's economy remains in a difficult situation. Net income at 5,400 listed companies declined for the third consecutive year for the fiscal year ending December 2025, and the proportion of companies reporting a net loss reached approximately 27%, indicating that the business environment is becoming increasingly difficult overall. The property industry was particularly challenging, with 59 of 108 companies reporting net losses. Although the government has introduced support measures, their effects have been limited and difficult conditions have continued.」

「Meanwhile, economic conditions in China remained weak. In particular, the downturn in the property market continued to be severe, as the negative wealth effect weakened consumer appetite and young people faced difficulty finding employment.」

「In China, various policies were introduced by the Chinese government, and signs of recovery began to emerge in the urban secondhand housing market. However, the weakness in the property market was expected to continue for some time. Within the Group, the number of properties of customers such as developers that had not reached completion and where construction had not progressed was also increasing.」

「The previous total financing restrictions for property developers were completely abolished, restrictions on purchases in urban areas were substantially eased, and policies were introduced to lower housing loan interest rates and down-payment ratios and grant urban household registration to urban homebuyers. Signs of recovery also began to emerge in some regions.」

「During the nine-month period of the current consolidated fiscal year, from January to September, the company initially expected an economic recovery and improvement in the property market following the complete lifting of the zero-COVID policy at the beginning of the year. However, the effects of the zero-COVID policy and the previous total financing restrictions for property developers, known as the Three Red Lines, remained significant, and conditions remained difficult. Nevertheless, measures to support a recovery in property markets were introduced in individual cities from late August to early September, including reductions in down-payment ratios and housing loan interest rates and the removal of restrictions on purchases of second homes. The company continued to closely monitor future market conditions.」

「Although the previous Chinese government policies of total financing restrictions for property developers, known as the Three Red Lines, and the zero-COVID policy had ended, the impact of both policies remained significant, and the economy and property market in China remained in a difficult situation despite expectations for an economic recovery.」

「In China, the zero-COVID policy, which had been in place for approximately 3 years to thoroughly contain the spread of COVID-19, ended. Although this led the company to expect an economic recovery and improvement in the property market, the side effects of the prolonged policy had a direct impact on corporate earnings, while employment conditions deteriorated further and the unemployment rate among young workers aged 16 to 24 reached a record high of 20.8%.」

「During the second half, from July to December, strict infection-control measures continued in regions where sporadic infections occurred even after the prolonged lockdowns in the first half. The prolonged zero-COVID policy depressed the economy, and economic growth was approximately 3%, well below the government's target of around 5.5%.」

「In China, during the third quarter, from January to September, the zero-COVID policy continued even after the extended Lunar New Year holiday and prolonged lockdowns across China from late March to early June 2022. Both the movement of people and logistics stagnated, continuing to significantly affect factory operations. The company also struggled amid factory shutdowns and disruptions to logistics.」

「Even after June, COVID-19 infections continued to occur frequently across China, and total contracted sales of condominium units sold by China's top 100 property companies were down 43% year on year.」

「According to data released by the National Bureau of Statistics, cumulative housing sales from January to March 2022 fell 27.2% year on year in eastern China and 33.9% in northeastern China, while major property developers were also reported to have experienced sales declines of roughly the same magnitude overall.」

「As the government tightened financial regulations to curb a property bubble, the debt crisis facing major property developers came to the fore, with some developers falling into serious difficulty.」

「Meanwhile, soaring apartment prices in urban areas and the credit problems of major developers unable to meet the total financing restrictions for property developers announced in August of the previous year and implemented in January of the current year began to cast a shadow over the housing industry. However, the Group faced no business risks because of its substantial order backlog and adequate credit management.」

「Meanwhile, in China, during the first quarter, from January to March, lending quotas for property investment were tightened and measures to crack down on speculative purchases were strengthened in some major cities, while demand remained weak due to the extended Lunar New Year holiday. In addition, developers were required to adopt stricter standards for purchasing land for residential use under the debt restrictions for developers issued by the financial authorities in August of the previous year, known as the Three Red Lines. Nevertheless, inquiries from developers remained strong under these circumstances, and housing demand in China was expected to remain firm.」

「In particular, as regulations aimed at curbing excessive debt and strengthening the financial health of property developers tightened during the current fiscal year, the company actively pursued sales activities for the following fiscal year, focusing on companies with sound financial positions.」

「In June, new-home prices in China's 70 major cities rose 0.6% month on month, accelerating from the previous month's increase, after China had achieved a degree of success in containing the infection. Housing demand had improved against a backdrop of economic recovery from the infectious disease crisis and was expected to remain firm going forward.」

「From a sales perspective, the resumption of construction was frequently delayed because of restrictions on movement between provinces, workers not returning to construction sites, and construction materials and components not arriving. Nevertheless, orders from developers remained strong even under these circumstances, and housing demand in China was expected to remain firm.」

「Changes to China's household registration system have led to substantial housing construction in regional cities as the system transitions toward correcting disparities and providing access to medical and old-age assistance and living support available to holders of urban household registration.」

「In China, the government has maintained its position that property is for living in, not for speculation, and has continued to strengthen oversight and regulation of the property market by restricting apartment transactions and tightening screening for housing loans. As a result, property price increases have tended to pause periodically. At the same time, as part of household registration system reforms, the Chinese government has continued to promote urbanization policies, including removing restrictions on obtaining household registration in regional cities to encourage migrant workers from rural areas to settle in cities.」

「Meanwhile, although the trade war with the United States continued and Chinese export manufacturers remained weak, China's property market also showed signs of slowing in major cities.」

「Meanwhile, although the trade war with the United States continued and Chinese export manufacturers remained weak, no major changes attributable to US-China trade friction were seen in the property markets of China's major cities. The impact was limited by economic stimulus measures such as tax cuts and lower social insurance premiums, and the Chinese economy appeared to be shifting from an export-led model to one driven by domestic demand. Although government restrictions on housing sales prices remained in place, housing prices rose due to the promotion of urbanization following the removal of household registration restrictions, increased housing demand associated with local government policies to attract talent, the revitalization of the secondhand housing market, and increased home purchases by companies.」

「In China, although government restrictions on housing sales prices remained in place, housing prices rose due to increased housing demand associated with the redevelopment of shantytown areas and local government policies to attract talent, the revitalization of the secondhand housing market, and increased home purchases by companies.」

「Meanwhile, in China, although transactions were slowing in first-tier cities such as Beijing and Shanghai, where government restrictions on selling prices remained in place, the housing market continued to expand in inland regions and small and medium-sized cities against a backdrop of policies to attract talent, while housing inventory adjustment gradually progressed. Overall, housing prices were trending upward.」

「Meanwhile, in China, although transactions were slowing in first-tier cities such as Beijing and Shanghai, where strict transaction regulations including government restrictions on home purchases remained in place, the housing markets in second-tier cities such as Wuhan and Chengdu continued to expand against a backdrop of local policies to attract talent, while housing inventory adjustment gradually progressed in small and medium-sized regional cities. Overall, housing prices in major cities were trending upward.」

「Meanwhile, in China, although transactions in first-tier cities such as Beijing and Shanghai were slowing as a result of the government's monetary tightening and restrictions on home purchases, expansion of the housing market continued against a backdrop of population growth in urban areas, while housing inventory adjustment gradually progressed in small and medium-sized regional cities.」

「Meanwhile, in China, although transactions in first-tier cities such as Beijing and Shanghai were slowing as a result of the government's monetary tightening policies and restrictions on home purchases aimed at containing the property bubble, inventory adjustment in the property market, supported by underlying demand, was gradually progressing, particularly in regional cities, and nationwide housing sales remained above the previous fiscal year's level.」

「Meanwhile, in China, although transactions in first-tier cities such as Beijing and Shanghai were slowing as a result of the government's monetary tightening and restrictions on home purchases aimed at containing the property bubble, inventory adjustment in the property market, supported by underlying demand, was gradually progressing, particularly in regional cities, and nationwide housing sales remained above the previous fiscal year's level.」

「Meanwhile, in China, although property prices remained high following the government's monetary tightening and restrictions on home purchases, pressure from the speculative bubble had begun to ease, and inventory adjustment in the property market, supported by underlying demand, was gradually progressing.」

「As a result, major and leading local developers achieved their annual targets early and were seen postponing sales to the following fiscal year or later. Although the third quarter in China, comprising July, August and September, is normally a busy period for the company, sales declined from approximately ¥3,400 million in the same period of the previous fiscal year to approximately ¥2,400 million in the current fiscal year, a decrease of approximately 30%, with sales carried over to the following fiscal year and beyond.」

「Meanwhile, in China, housing prices in first-tier cities such as Beijing, Shanghai and Guangzhou surged, continuing to rise by around 2% per month from the beginning of this year. As major, leading developers had already achieved their sales and profit targets for the fiscal year, they postponed sales to the following period, resulting in a series of delays to interior construction. Although the third quarter, comprising July, August and September in China, is normally the peak season, revenue for the period fell to approximately ¥2,400 million from approximately ¥3,400 million a year earlier, a decline of approximately 30%, based on an exchange rate of ¥16 to the yuan in both years. Orders were being carried over to the following fiscal year and beyond.」

「Meanwhile, housing trends in China differed significantly between major cities and regional areas. Although both housing sales volumes and prices were buoyant in first-tier cities such as Beijing, Shanghai and Shenzhen, inventories continued to build up in second-tier cities and northeastern China. In areas where housing prices continued to rise each month, developers that had achieved their sales targets began postponing interior finishing work and carrying sales over to the following fiscal year in an effort to hold back inventory.」

「Meanwhile, in China, housing prices rose and housing inventories were cleared in major cities such as Beijing, Shanghai and Shenzhen, while inventories continued to build up in small and medium-sized regional cities, leading to increasing polarization. In northeastern China, where the Group has a high market share and heavy industry is the main industry, the economic recovery remained weak, inventory clearance was slow, and new housing starts did not progress. Conditions in China's property market are changing rapidly and vary by region and province.」