Vi e w p o i n t | 29 Jan 2026 01:59:47 ET │ 13 pages China Property Three Red Lines to Ease but Unlikely to Leverage Up for Investment in ST CITI'S TAKE Policies pacing up: talk of easing "three red lines" — Property firms are no longer required to report "three red lines" indicators to authorities (Bloomberg, 29 Jan). We note the "three red lines" were implemented since Aug'2020 in an aim to limit debt and encourage sector deleveraging. Indeed, after the Qiushi Journal article (link) that set a supportive ...

Core Insights - Goldman Sachs predicts that the trend of deleveraging in China's real estate market will pause around 2026-2027, potentially leading to a new buying cycle if economic conditions improve [1][26] - The share of real estate assets in total household assets is expected to decline from approximately 70% to around 50% by 2027, still above developed markets but significantly lower than peak levels [2][27] Market Dynamics - A significant portion of high loan-to-value (LTV) housing sold between 2021 and 2023 may face negative equity risks if average selling prices decline by 20-30% [3][28] - If housing prices drop by 20-30%, many homeowners may choose to default on their mortgages, leading to an increase in foreclosures and further price declines, creating a vicious cycle [4][28] Government Intervention - Goldman Sachs estimates that approximately RMB 8 trillion (5.8% of 2025 GDP) in funding will be required to stabilize the market and support inventory reduction and project completion [5][29] - A more feasible alternative proposed is for the government to directly purchase second-hand homes, requiring around RMB 600 billion [6][30] Housing Supply and Demand - By 2027, the volume of secondary listings is expected to account for about 3% of the total housing stock, with homeowners likely motivated to sell vacant properties before economic conditions stabilize [7][32] - In first-tier cities, 76% of new housing supply from 2025 to 2027 will be second-hand homes, while second-tier cities will see a more balanced distribution between new and second-hand homes [8][32] Economic Context - The contribution of the real estate sector to GDP has fallen below 6%, returning to levels comparable to 2014, indicating a potential for continued downward trends in the sector [18][42] - Current economic conditions, including declining incomes and rising unemployment, are significantly weaker than in previous downturns, affecting consumer confidence and purchasing power [21][44] Historical Comparisons - The report draws parallels between the current situation in China and Japan's real estate crisis in the 1990s, highlighting the risks of prolonged downturns if substantial government support is not provided [11][37] - Historical data suggests that previous government interventions, such as the 2014-2015 stimulus, led to significant rebounds in property prices, indicating potential for similar outcomes if effective measures are implemented [40][41]