China's prolonged housing market downturn intensified in late 2025, with new home prices across 70 major cities falling 2.4% year-on-year in November—the steepest decline in months—while second-hand sales continued to slump. The crisis, now in its fifth year, has eroded household wealth, dampened consumption, and strained related industries like steel and cement, dragging on the world's second-largest economy.
At its peak, real estate contributed nearly 30% to China's GDP, but its share has shrunk to around 15% amid contraction. Despite vows to stabilize the sector, Beijing has avoided aggressive stimulus, focusing instead on city-specific measures and inventory reduction. November data showed new home sales dropping 0.4% month-on-month, underscoring persistent weak demand.
The turmoil spotlighted state-backed developer China Vanke, once the nation's largest by sales. In late November, Vanke sought bondholder approval to delay repayments on onshore notes, triggering record bond plunges and trading halts. S&P Global downgraded Vanke, citing "unsustainable" financial commitments and weak liquidity amid a bond maturity wall exceeding 11 billion yuan ($1.6 billion) from December 2025 to mid-2026. Fitch later slashed ratings to "C" for Vanke and "CC" for its Hong Kong subsidiary, signaling heightened default risk after negative free cash flow projections for 2025-2026.
Vanke's sales plunged over 40% in the first 10-11 months of 2025, with cash positions at historic lows covering only about 40% of short-term debt. Bondholders rejected initial extension proposals, forcing negotiations amid a grace period. Analysts warn Vanke's potential restructuring—despite state ties via Shenzhen Metro—could surpass impacts from Evergrande and Country Garden defaults, eroding confidence further.
Asian markets analyst Sadi Kaymaz described China's economy as dual-sided: booming in EVs, solar, and batteries, but darkened by real estate inefficiencies. "Excessive construction and indebted firms have posed macroeconomic risks for years," he noted, highlighting Vanke's scale as amplifying dangers. With low household confidence and subdued consumption, many developers face negative profitability and interest payment struggles.
Broader indicators paint a grim picture: real estate investment fell sharply in 2025, with home sales by floor area down nearly half from 2021 peaks. Negative-equity mortgages surged, and nonperforming loans rose. Private surveys showed secondary prices in 100 cities dropping over 7% year-on-year.
Policymakers face a dilemma: bolstering the sector risks rekindling bubbles, while inaction prolongs pain. Recent pledges include optimizing supply and affordable housing, but large-scale bailouts remain off the table. The crisis's spillover—reduced local government revenues, bank strains, and cautious consumers—threatens overall growth targets.
As Vanke navigates creditor talks and potential state-guided resolutions, the sector's trajectory signals no quick bottom. Analysts forecast continued contraction into 2026, urging bolder demand-side support to revive sentiment.
