Has China's housing market seen spring? Chinese scholar: May continue to fall due to 4 major reasons

Despite some signs of vitality in China's housing market this spring, particularly in major cities like Shanghai and Shenzhen, where property viewings and transactions have increased from last year, a prominent academic cautions against declaring a market bottom. Professor Zhu Ning of Shanghai Jiao Tong University's Shanghai Advanced Institute of Finance argues that several factors suggest the market may continue to decline.

Zhu points to the strong seasonality of China's housing market, noting that spring typically sees heightened activity. He suggests that the current uptick, following policy promises to boost economic growth, might be a temporary surge, similar to a sell-off observed in the latter half of 2025. Furthermore, he emphasizes that market bottoms for major asset classes like stocks, bonds, and commodities are rarely instantaneous. The continued fall in home listing prices, which partly fuels current viewing and transaction numbers, indicates the market has not yet stabilized.

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The rental price yield in some areas has reached 2%, and in the current low-interest-rate environment, the interest rate for a 3-year fixed deposit is only about 1.5%, making this rental price yield very attractive.

A significant "scarring effect" from the evaporation of an estimated 100 trillion yuan (approximately $13.8 trillion) in wealth during the property market correction also weighs on consumer confidence and investment expectations. While the Chinese A-share market's rise has helped restore some investor confidence, its sustainability remains uncertain. Zhu observes that the current increase in viewings and transactions is concentrated in older, more affordable properties offering better rental yields, which are attractive compared to current low deposit rates.

However, Zhu highlights a critical imbalance: China's current mortgage rates hover around 3.5%, while rental yields in some areas have reached only 2%. This gap means rental income alone cannot cover mortgage costs, suggesting that further price declines are necessary to improve rental returns and attract investors back to the market. He also notes that while first-tier cities might see a recovery, this trend is not uniform across the country, with many smaller cities facing longer and deeper price drops, compounded by population decline, which poses a long-term challenge.

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However, it is also worth noting that China's current mortgage interest rate is about 3.5%, indicating that rental income alone cannot afford the mortgage interest rate.