Chinese Real Estate Stocks Falter, Falling Back to Pre-2024 Stimulus Levels

New Home Prices Fall 0.2% in May, Outpacing April's Decline
"Third- and Fourth-Tier Cities Remain Under Pressure"
KKR Identifies Real Estate as a Key Obstacle to Growth

The stock prices of Chinese real estate-related companies have returned to levels seen before the government’s large-scale stimulus policies in 2024. As home prices in smaller cities have been slow to recover, and the artificial intelligence (AI) boom has funneled capital into technology and semiconductor stocks, investment sentiment toward the sector has further weakened.

On the 15th (local time), people are passing through the streets of Shanghai, China. Photo by EPA Yonhap News

According to Bloomberg Intelligence on June 16, the stock index for Chinese real estate developers fell as much as 2.1% during intraday trading. The decline widened after weak housing price indicators were released that day. Among individual stocks, Sunac China Holdings dropped 6%, while Shimao Group fell 4.4%.

Until now, most Chinese real estate stock indices had maintained levels above their 2024 peaks. This was because authorities had actively defended housing prices by unveiling a robust financial and monetary easing package in September 2024 to counter the property market downturn. The government work report released during the "Two Sessions" (National People's Congress and Chinese People’s Political Consultative Conference) in March also called for continued policy support to stabilize the real estate market.

Bloomberg pointed out that pessimism toward the industry contributed to the weakened investor sentiment for real estate stocks on this day. In fact, data released by China’s National Bureau of Statistics (NBS) showed that, excluding government-subsidized housing, new home prices in 70 cities nationwide fell 0.2% in May compared to the previous month. This marked a steeper decline than in April (-0.19%). In contrast, new home prices in China’s first-tier cities rose 0.2%, continuing a rebound for the third consecutive month.

Jeff Zhang, an analyst at research firm Morningstar, noted, “In May, home price trends in higher-tier cities (first- and second-tier) visibly improved both month-on-month and year-on-year.” He added, “However, home prices in lower-tier cities (third- and fourth-tier, smaller provincial cities) remain under pressure.” He went on to predict, “The gap between high-tier and lower-tier cities will persist. It will likely be difficult for national new home prices to hit bottom before 2027.”

Additionally, the recent AI boom, with funds flowing into technology and semiconductor stocks, was also cited as a factor accelerating the decline. Since the beginning of the year, real estate stock indices have fallen by 13%, whereas the STAR 50 Index, composed of semiconductor firms, has surged by 30%.

The upcoming half-year earnings reports are seen as a key variable for future investor sentiment. State-owned Chinese property developer Vanke posted a net loss of about 6 billion yuan in the first quarter. Vanke, previously regarded as relatively financially sound, alarmed investors after facing a “default” crisis last year. Other developers such as Gemdale also reported large-scale losses.

U.S. economic media outlet CNBC also highlighted ongoing market concerns about China’s real estate sector. In a mid-term outlook report released last week, private equity firm KKR identified real estate as the most significant issue facing the Chinese economy. The report projected that digital industries such as AI would contribute 2.5 percentage points to China’s growth rate by 2027, but the impact of the property downturn would drag this year’s growth rate down by 1.0 percentage point. As a result, economic growth is expected to slow from 4.6% this year to 4.4% in 2027.

In its report, KKR stated, “The main reason we cannot be more optimistic about China is still the real estate sector,” adding, “It will take China longer than other countries to overcome the real estate downturn due to the massive inventory of unsold homes.”

This content was produced with the assistance of AI translation services.