China’s housing slump deepens as January prices fall 3.1% y/y, extending multi-year downturn.

Summary:

• Deflationary property trend deepens

• Developer balance sheets remain strained

• Debt overhang continues to weigh on sector

• Policy support yet to generate sustained turnaround

China’s property downturn showed little sign of stabilising in January, with new home prices falling 3.1% year-on-year, deepening from the prior 2.7% decline. On a monthly basis, prices slipped 0.4%, unchanged from December, underscoring the persistence of downward momentum in the sector.

The data reinforces the view that China’s housing market remains entrenched in a multi-year correction. What began as a liquidity squeeze among heavily leveraged developers has evolved into a broader demand slump, with weak buyer confidence, falling sales volumes and declining prices feeding into each other.

The sector’s debt burden remains a central pressure point. Years of aggressive expansion funded by high leverage left many developers exposed when authorities tightened financing conditions under the “three red lines” policy framework. High-profile defaults and restructuring efforts have continued to cloud the outlook, while pre-sale funding models have struggled amid slower buyer demand.

Policy easing has been incremental rather than aggressive. Authorities have lowered mortgage rates, relaxed purchase restrictions in some cities and encouraged state-backed entities to support unfinished projects. However, these measures have yet to deliver a decisive inflection point. Household sentiment remains cautious, particularly as broader economic growth has moderated and youth unemployment concerns linger.

The property sector carries outsized importance in China’s economy, directly and indirectly accounting for a substantial share of GDP, local government revenues and household wealth. Persistent price declines therefore have implications well beyond construction activity, affecting consumer spending, credit growth and financial stability.

With monthly declines holding steady and annual falls deepening, January’s figures suggest the sector is still searching for a floor. Markets will continue to watch for stronger fiscal or monetary intervention should deflationary pressures in property intensify further.