Core Insights - Goldman Sachs' report on China's real estate market emphasizes the need for a positive feedback loop to clear housing inventory, with first- and second-tier cities identified as key drivers for market stabilization [1][3]. Historical Context - The report references Shanghai's real estate adjustments from 1998 to 2003, where policy reforms led to a significant reduction in housing inventory, with unsold completed housing halving and the inventory turnover period decreasing from 17 months to 3 months [2][28]. - During this period, the cumulative increase in housing prices exceeded 40%, and property transactions surged, indicating a successful recovery driven by targeted policies [2][29]. Current Market Analysis - First- and second-tier cities in China are estimated to require an additional 3.5 billion square meters of housing, representing a substantial investment gap of approximately 73 trillion yuan [3][6]. - Recent data shows a decline in housing prices and transaction volumes, with new home prices dropping by 0.3% and second-hand home prices by 0.5% in July 2025, indicating ongoing market pressure [4][16]. Policy Scenarios - Goldman Sachs outlines two policy scenarios: a neutral impact scenario requiring a 90% increase in new construction to stabilize GDP growth, and a mildly positive scenario necessitating a 130% increase in new construction [5][14]. - Both scenarios highlight the need for liquidity support to developers, with estimates of required funding ranging from 1.4 trillion to 2.8 trillion yuan depending on the effectiveness of demand stimulation [5][14]. Demand Side Considerations - To maintain reasonable inventory levels, first- and second-tier cities need to sell an additional 2.1 to 3.1 billion square meters of housing by 2026, necessitating significant improvements in buyer purchasing power and market confidence [6][11]. - Current constraints include high housing price-to-income ratios and limited supply for non-resident households, necessitating policy adjustments such as subsidies and relaxed mortgage conditions [6][11]. Developer Implications - Developers with land reserves in first- and second-tier cities are expected to benefit from policy support, potentially accelerating project development and increasing sales [7][11]. - However, increased competition from new supply may pressure prices further, delaying profit recovery for developers [7][11]. Long-term Outlook - The report anticipates that by 2027, first- and second-tier cities will account for a larger share of national real estate metrics, reinforcing their critical role in the overall market [8][11].