Why has the property drag intensified this year?

  • Goldman Sachs has raised its estimate of the direct drag from real estate on China’s real GDP growth in 2026 from 1.5 percentage points to 1.8 percentage points, also slightly above the 1.7 percentage points in 2025. This reverses its earlier expectation that the drag would ease somewhat this year.
  • Actual activity has been weaker than Goldman Sachs expected at the start of the year: from 1 to September of 2026, land sale revenues, new housing starts and real estate fixed-asset investment fell 28%, 25% and 21% year on year, respectively. Most property activity indicators have fallen 60%–90% from their 2020–2021 peaks, and the adjustment continues.
  • The direct drag above covers construction, real estate services, upstream commodity demand, move-in-related consumption and the fiscal impact associated with land sales. It measures the property sector’s impact on the economy through multiple channels.

How will the shift to sales of completed homes prolong the investment downturn?

  • A shift from presales to sales of completed homes, together with tighter supervision of project funds, will constrain developers’ funding sources. On that basis, Goldman Sachs expects property investment to remain under pressure over the coming years, with construction activity declining more deeply and for longer than previously expected.
  • Under Goldman Sachs’ new baseline, land sale revenues, new housing starts, new home sales and real estate fixed-asset investment are expected to fall a further 20%, 20%, 10% and 17%, respectively, in 2027; the corresponding forecasts for full-year 2026 are declines of 30%, 22%, 8% and 20%. Thus, a lighter drag on the economy next year can still coincide with a continued contraction in property activity.
  • The floor area statistically recorded as under construction may also obscure the actual contraction: some suspended and terminated projects remain included. Goldman Sachs has switched to using new-start data to reassess the scale of construction underway and correct this bias.

Why will the drag on growth ease as the property sector continues to shrink?

  • The central mechanism is the declining weight of property in the economy. Under Goldman Sachs’ broader measure, which includes move-in consumption and the land finance channel, property’s share of GDP has fallen from around 30% at its peak to about 15% in 2025, and is expected to stabilise at around 8% from 2030 onward. As the sector shrinks, further declines will have a smaller effect on overall growth.
  • Under this baseline, Goldman Sachs expects the direct drag to fall from 1.8 percentage points in 2026 to 1.3 percentage points in 2027, and to largely fade around 2030. This path depends on continued adjustment in property activity and its weight in the economy; it does not require starts or investment to return to growth next year.

Will home prices and household consumption stabilise at the same time?

  • Goldman Sachs believes home prices could recover more quickly in major cities such as Shanghai and Shenzhen, where inventories are already relatively low. In other parts of the country, particularly lower-tier cities facing greater inventory pressure, prices could continue to fall for several years.
  • Home prices also affect consumption through household wealth. The relationship used in Goldman Sachs’ model is that for every 1 yuan decline in housing value, annual household consumption falls by about 0.01 yuan in the same direction. This indirect effect must be counted separately from the direct drag described above.
  • Goldman Sachs estimates that the negative housing wealth effect peaked in 2024–2025. Assuming nationwide existing-home prices bottom in 2030, it expects the effect to weaken gradually and fade in the early 2030s. A recovery in prices in some cities and an easing of pressure on consumption nationwide therefore follow different timelines.

Why is local fiscal pressure hard to ease alongside the diminishing drag on growth?

  • Based on developers’ cash flow, Goldman Sachs’ property team expects residential land transaction volume in 2035 to be more than 90% lower than in 2025. Localities heavily reliant on property revenue still face financing pressure and need alternative revenue or spending cuts.
  • Goldman Sachs therefore sees a potential window for expanding property taxes nationwide in the late stages of the “Fifteenth Five-Year Plan” or during the “Sixteenth Five-Year Plan”: the latter part of 2026–2030 or 2031–2035. The aim would be to broaden local tax bases and partly offset lost land revenues; the precise timing and scope depend on housing market conditions and domestic market confidence.