Morgan Stanley sees mainland China property market slump extending into 2026

Mainland China’s property market will remain under pressure in the first quarter of next year as weak monthly sales show few signs of a turnaround, according to Morgan Stanley.\nSales at the country’s top 100 developers fell 36 per cent in November from a year earlier to 184 billion yuan (US$26 billion), according to Morgan Stanley, which used data compiled by China Real Estate Information Corp (CRIC). In the first 11 months, developers recorded 2.71 trillion yuan in sales, a decrease of 19 per cent from a year earlier.\nAdding to the uncertainty, the private data agency CRIC withheld its regular monthly sales update for the top 100 developers. The data, which is published at the end of every month, is closely watched by analysts for signs of market shifts.\n“We believe sluggish sales may prolong into the first quarter of 2026 owing to weak buyer sentiment, reactive policy roll-out and a high base,” said Stephen Cheung, an equity analyst at the bank, in a report on Tuesday.\n\nThe US investment bank reiterated its cautious view that significant housing policy changes were unlikely in the coming months, despite growing calls for stronger measures to stabilise the sector. The slowdown would be driven by subdued buyer sentiment, limited policy support and broader economic uncertainty, the bank added.\nLooking ahead, Morgan Stanley signalled that targeted support could emerge later next year. It expected mortgage-interest subsidies or similar incentives to be introduced late in the second quarter or third quarter of 2026, but only if price declines in tier-one cities spread further into tier-two markets.\nThe slump continues to drag on the broader economy and weigh on consumer confidence.\nThe secondary market is also deteriorating. An index from the China Index Academy, an independent property research institute, tracking home sales in 100 cities showed average second-hand home prices fell 8 per cent in November from a year earlier to 13,143 yuan per square metre. The declines were across the board, with prices in tier-one cities falling 5.6 per cent, major provincial capitals losing 8.2 per cent and smaller cities and rural areas retreating 7.4 per cent.\nChina’s property market has been weakening since late 2020, following the roll-out of the “three red lines” policy aimed at reducing developers’ leverage.\nAlthough Beijing has since softened its stance and local governments have introduced hundreds of supportive measures, Morgan Stanley said policymakers remained cautious and were unlikely to launch aggressive nationwide easing in the near term.\nUBS echoed this view. The Swiss bank said in a report last month that it expected Beijing to take moderate steps, such as further cutting mortgage rates, clearing inventory at a quicker pace and continuing structural reforms.\nThe bank forecast China’s property sales, new starts and investment to decline by 5 to 10 per cent in 2026 and zero to 5 per cent in 2027, and to drag on the overall gross domestic product by a half to a full percentage point in 2026.\n