Name: Chinas property slump to persist as consumers shift to rentals: UBS
Uploaded: 2026-01-02T08:06:26.401Z
Duration: 5 min 9 s
Description: John Lam, Head of China & HK Property Research at UBS Investment Bank, explains why he sees a 10% decline in property prices and new home sales in China for 2026. He also explains why defaulting developers like China Vanke are having less of an impact on the sector.

John Lam, Head of China & HK Property Research at UBS Investment Bank, explains why he sees a 10% decline in property prices and new home sales in China for 2026. He also explains why defaulting developers like China Vanke are having less of an impact on the sector.

Shanghai

UBS analysts forecast that China's property market will remain in a down cycle for at least two more years, with home prices and new sales expected to decline by 10% in 2026 and an additional 5% in 2027. The shift in consumer sentiment, driven by five years of declining prices, has led more people to prefer renting over buying, especially as rental yields remain lower than mortgage rates in major cities.

Despite the increased preference for renting, rental prices are also falling, reflecting ongoing imbalances in supply and demand. While the impact of developer defaults is lessening compared to previous years, policy support such as interest rate cuts or mortgage subsidies could help stabilize the market. The government is also considering adjustments to social housing supply to address declining rental prices.

China's property slump to persist as consumers shift to rentals: UBS

And yes, we expect another two years of the property down cycle. In 2026, we expect about 10% decline for the price and also for the new home sales. And for 2027, we expect another 5% decline for the price and also the new home sales as well. Our thesis or the logic is mainly because nowadays the housing price expectation by the people has fundamentally changed after five years of down cycle. And therefore, people, they prefer to rent rather than buying properties. And if you look at the rental yield in the T1 cities, it was only about 1.8%. Mortgage rate is higher at about 3.1%. So it makes more sense to rent rather than buying properties. And despite that more people prefer to rent, actually what we are seeing is that the rental price is also declining. And I think rental price is a pretty good indicator to show about the underlying demand-supply dynamics for a property as asset class. And the declining rental, you may suggest that the underlying demand-supply dynamics is still in balance. It may take another two years to digest or de-stock the inventory. Okay, so rents are going down, property prices are also declining. I want to get your take on what you expect in terms of price declines because we've come down about a third since the property peaks a number of years ago. What kind of price declines are you expecting this year? So we expect about 10% decline from the beginning of this year to end of this year. But then it's not stabilized yet. Probably another 5% decline for 2027. So what should people be doing in terms of if you are a homeowner, which you wouldn't be selling it now, how are people going to be offloading all the vacant units? How is the property market going to get out of this funk that it's in? Well, I would say the first thing that the homeowners would do would be to sell the properties given the rental use is so low compared to the holding cost, which is the mortgage rate. But then as you mentioned, it is so difficult to sell properties in the secondary market nowadays. And therefore, what we are seeing here is that the homeowners, they are doing both, meaning that they are listing for sale and also listing for rent as well. At least you get back some rental income to offset some of the mortgage costs or mortgage payment. So how and when do you expect the market to stabilize? Let's start with Venka because this is the last major property developer that has yet to default. But S&P has already downgraded the company to a selective default. So do you think it can avoid a default? Well, actually, I would say the impact to the sector is getting less and less because as you mentioned, there are much more developers that have defaulted after Evergrande defaulted. And compared to now, which is China Renji, the impact to the sector will be less compared to before. And also about the concern on the suspended projects is also getting less compared to the previous years. So I would say the developers restructuring or default, it will still have some impact, but the impact could be less compared to 2022 or 2023. We heard from President Xi Jinping in his New Year's Eve address, the most confident that he has been in some time. He expects the Chinese economy to be able to hit the around 5% GDP growth target for 2025. The property market was once a very large part of the economy. It has become less so. Do you have confidence in the Chinese economy? And in terms of the property market, the policy stimulus that the government has teased, what do you expect there? Well, first of all, two things here. Number one is that the negative drag from property sector to the economy should be getting less and less because the magnitude of the decline was much bigger back in 2022 and 2023. Because at that time, there was more developer default as well. Going ahead, we expect 10% decline for this year and then another 5% decline. And therefore, the level of the decline is also getting less. And hence, we should expect the drag on the economy should be getting less as well. Second is about the policy. So we are also seeing more policy support on the sector. Although I would say that the most effective policy, in my view, is about interest rate cut. Right now, the biggest problem is about the negative carry, which is the rental use being too low compared to the mortgage. And if we have something like the mortgage rate subsidies or interest rate cut, it may help lower the burden for the homeowners. And also another thing is about the rental housing supply. Another reason why the rental price has been declining is about the social housing supply. So if the government is going to slow down the supply for social housing, it will also help stabilize the rental price as well.

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