China's New-Home Price Gains vs. Resale Market Declines

Recent market analysis from the China Index Academy highlights a significant divergence in the performance of new homes and the resale market in major Chinese cities. As of late 2025, modest new-home price gains of approximately 3-5% have been reported in urban centers, primarily driven by limited supply and government incentives aimed at stimulating new construction. Conversely, the resale market is experiencing a downward trajectory, with average home prices dropping by nearly 10% over the same period.

Consequences for Household Wealth

The contrasting trends have profound implications for household wealth. In areas where new-home prices are increasing, homeowners may feel a false sense of economic security, believing that their investments in real estate are safe. However, the depreciation in resale values creates a disparity between what individuals perceive their properties to be worth and the market reality. For instance, homeowners in cities like Shenzhen and Beijing, which have seen new developments thrive, are finding that their existing properties are worth significantly less in comparison due to a glut of older inventory flooding the market.

This decrease in resale values diminishes household wealth, as the net worth of families hinges heavily on property holdings. Financial security, often supported by home equity, is now jeopardized. A report from the National Bureau of Statistics indicated that Chinese families derive over 70% of their net wealth from real estate, emphasizing the critical role housing plays in the economy.

Impact on Developer Balance Sheets

For property developers, the landscape poses severe challenges. As new-home prices show modest gains, developers are encouraged to invest in new projects to capitalize on ongoing demand. However, falling resale prices signify an oversupply of housing in the market. Companies like Country Garden and Evergrande, previously giants in the industry, are facing declining revenues because consumer confidence is waning, and potential buyers are becoming cautious.

Debt burdens are becoming untenable for many developers, with some reporting debt-to-equity ratios exceeding 150%. A survey conducted in September 2025 revealed that nearly 40% of developers are contemplating asset sales or restructuring as profitability dwindles. The decline in resale value also affects the developers' ability to finance new projects, as banks are increasingly reluctant to extend credit against properties that have diminished equity.

Local Government Finances Under Pressure

The financial strain extends beyond homeowners and developers, impacting local government finances significantly. Municipalities across China rely heavily on land sales for funding infrastructure and public services. As resale values decline, the attractiveness of existing properties diminishes, leading to reduced land transaction revenues.

For instance, in cities like Wuhan and Chengdu, local government income from land sales has experienced declines of over 15% year-on-year according to the Ministry of Finance, exacerbating budgetary constraints. These dips are prompting local governments to seek alternative funding mechanisms and reconsider development plans, which could stall infrastructure projects and services essential for urban residents.

Potential Policy Responses

In response to these challenges, policymakers are exploring measures to stabilize market dynamics. Initiatives include expanding housing subsidies, relaxing mortgage regulations for new homes, and imposing stricter regulations on speculative purchasing in the resale market. These strategies aim to cushion the impact on developers while providing relief for households experiencing wealth erosion.

Market analysts suggest that targeted interventions could help rebalance the market. However, without meaningful shifts in consumer psychology and economic sentiment, traditional policy mechanisms may face challenges in reversing the current trends.

Future Outlook for the Housing Market

The juxtaposition of modest new-home price gains against falling resale values is likely to persist into early 2026. As consumers observe stagnating demand in the resale market alongside government incentives bolstering new developments, the housing market's trajectory will hinge on macroeconomic conditions and overall consumer confidence.

A shift towards a buyer’s market may unfold, further complicating the prospects for developers already laden with heavy debts. Stakeholders across the sector, from homeowners to local governments, must navigate this increasingly complex environment as they seek to safeguard their financial interests.