Citi’s 2027 outlook for China’s housing market: Prices in core cities may reach a turning point as new-home supply continues to shrink

Why does residential demand appear stable while the new-home market continues to contract?

Citi expects combined nationwide new- and existing-home transaction area in 2027 to be about 1.26 billion square meters, down approximately 3% from its 2026 forecast, but still close to 1.3 billion square meters. Growth in existing homes will partly offset the contraction in new homes.
Existing-home prices can be negotiated by buyers and sellers, while quality, location and delivery are also more certain. Citi expects existing-home transaction area to rise 5% year on year to 693 million square meters in 2027, and transaction value to increase 3% to 7.7 trillion yuan, accounting for 58% of residential transaction value.
There are already signs of a shift to existing homes: In the first 8 months of 2026, the number of existing homes sold in the 36 cities tracked rose 3% year on year, while the number of new homes sold fell 10%.

Citi expects cities such as Shanghai, Beijing and Shenzhen, with large employed populations, better transaction liquidity and healthier supply and demand, to see turning points in existing-home prices first. In September 2026, Shanghai existing-home prices rose 0.8% year on year, while those in Beijing and Shenzhen fell 2.5% and 1.5%, respectively, with the declines narrowing.
High transaction volumes help absorb the stock of homes held at high cost: After homes change hands, their holding costs are closer to current market prices, and fewer owners may wait for a price rebound before selling. Existing-home listings in the 39 cities tracked were down 3% from the previous year-end as of October 2026.
Stabilization remains uneven: Existing-home prices in major first-tier cities are 37%–44% below their respective historical peaks, while the National Bureau of Statistics’ existing-home price index for 70 cities was still down 5.1% year on year in August 2026. Citi estimates that about 2.21 million potential existing homes in 36 cities remain unlisted, equivalent to about 49% of current listings.

Citi expects residential housing starts by floor area to fall about 21% year on year to 255 million square meters in 2027, and completed area to fall 22% to 245 million square meters, both returning to levels seen around 2000. Tighter financing, sales of completed homes and inventory reduction requirements are making developers more cautious about acquiring land and building.
Supply is contracting faster than sales, helping reduce inventory. In September 2026, broad new-home inventory by floor area in 80 cities fell 6% year on year; but weak sales pushed the inventory clearance period up to 36 months, well above the historical average of about 17 months.
Differences between cities are pronounced: The new-home inventory clearance period in first-tier cities is 22 months, which Citi considers manageable relative to a construction cycle of about 24 months; lower-tier cities face greater inventory pressure.

Citi expects nationwide new-home sales value in 2027 to fall 11% year on year to 5.6 trillion yuan, with sales area declining to about 560 million square meters. A shift in buyer preference toward existing homes, together with demographic pressures and pressure on home-price expectations, continues to weaken demand for new homes.
Sales of completed homes lengthen the capital recovery period, requiring developers to commit more funds to maintain the same sales scale. Citi expects property development investment to fall 24% year on year to 4.9 trillion yuan in 2027, a steeper decline than sales value.
In a scenario where land prices have not adjusted, Citi calculates that developers would need to commit 70%–120% more of their own capital to maintain a similar sales scale, and project internal rates of return could fall from about 20%–25% to 3%–7%.

The first-home mortgage interest subsidy implemented from October 2026 applies to homes with an area of no more than 120 square meters and a total price of no more than 1.5 million yuan. Eligible loan principal is capped at 1 million yuan, with an annual interest subsidy of 1 percentage point for up to 5 years.
Citi believes the subsidy will benefit ordinary housing in third- and fourth-tier cities and the outskirts of second-tier cities more. Based on transactions in 40 cities in the first 8 months of 2026, new and existing homes meeting the area and price criteria accounted for 33% and about 55%, respectively. Citi estimates the policy could increase nationwide new-home sales at the margin by 1%–2%.
Even as policy provides support, declining land revenue continues to weigh on local finances. Citi expects land sale revenue to account for 16% of local government revenue in 2027, below the 2020 peak of 44%; local governments’ fiscal deficit was 9.7 trillion yuan in the first 8 months of 2026.