Commerzbank\u2019s Dr. Henry Hao argues China\u2019s housing downturn, now in its fifth year, is settling into an L-shaped stagnation with a pronounced K-shaped regional divergence. The report highlights persistent weakness in developer funding, construction starts and demand, despite localized stabilization in Tier-1 cities. Structural headwinds from demographics and policy constraints suggest China\u2019s real estate sector will remain a drag on growth for years.<\/p>\n
L-shaped stagnation with K-shaped split<\/p>\n
“The question we aim to answer in this insight is whether the downturn is finally approaching an inflection point. Recent data from the first half of the year indicates a localized stabilization in top-tier cities. While some analysts point to this as a sign of a housing recovery, we take a different view and see China\u2019s real estate sector as locked into a prolonged period of stagnation.”<\/p>\n
“Inventory pressure is the clearest sign of regional divergence. Top-tier cities are gradually working through excess supply, with average absorption periods in Tier-1 and Tier-2 cities falling to 21 months and 27 months, respectively, as of May 2026. By contrast, lower-tier cities remain burdened by tens of millions of unsold units, with an average absorption period of about 84 months, or roughly seven years.”<\/p>\n
“In 2026 H1, total funds available to real estate developers contracted by 18% yoy (Chart 5). The primary source of funds for developers traditionally came from pre-sales and mortgages. With buyers retreating, this revenue stream has dried up.”<\/p>\n
“This brings us to housing starts. New construction starts have dropped to a mere 24% of their July 2021 level. This is the most forward-looking indicator of developer sentiment.”<\/p>\n
“In conclusion, we maintain our view that China’s real estate sector is locked into an L-shaped trajectory. The market is settling into a permanent, downsized baseline. This L-shaped recovery is accompanied by a severe K-shaped divergence.”<\/p>\n