Prospects for China's New Real Estate Development Model

Since 2021, China's real estate sector has undergone a profound market adjustment, marking a critical turning point from the high-growth model dominated by "high leverage, high turnover and high debt" to a high-quality development track. This adjustment, driven by shifts in supply and demand, structural issues and policy guidance, has prompted the Chinese government to introduce a series of targeted regulatory measures to defuse risks and stabilize the market. Against this backdrop, building a new development model for the real estate industry has become essential to adapt to evolving market dynamics and ensure long-term sustainable development. This article briefly reviews the market adjustment of China's property market since 2021, analyzes its inherent causes and government responses, and then explores the framework and key tasks of establishing the new development model from four dimensions: market stability, structural optimization, quality improvement, and the assurance of "adequate housing for all", and concludes with a summary and outlook, aiming to provide a comprehensive and in-depth reference for international audiences to understand the transformation and development of China's real estate industry.

Institutional Backgrounds

The real estate industry has long been an important pillar of China's national economy, playing a pivotal role in promoting economic growth, improving people's livelihoods, and fueling the growth of related sectors. From the late 1990s to 2020, amid rapid urbanization and unfolding demographic dividend, China's real estate sector boomed, with the "high leverage, high turnover and high debt" model becoming the standard playbook for most developers. Nevertheless, the risks brought by this high-growth model have driven regulatory adjustments since 2020, including the three red lines policy targeting property enterprises and centralized management of real estate loans. As regulations grew more stringent, many property developers saw their financing channels constricted, which in turn led to lower transaction volumes, price declines in parts of the country, and heightened liquidity risks for developers.

According to official statistics, in 2025, the sales area of first-hand property in China was 0.88 billion square meters, equivalent to merely 51% of its peak in 2019, and the sale value in the same year was 8.39 trillion yuan, accounting for only 49% of the peak recorded in 2021. Meanwhile, the mean sale price of both new and second-hand housing has trended downward continuously since 2021, with no visible signs of recovery to date.

The inherent causes of this market adjustment are complex and profound, mainly reflected in four aspects. First, the fundamental supply-demand dynamics have reversed. With China's urbanization rate exceeding 67% and the growth rate slowing down, the demand for new housing brought by urbanization has gradually decreased. At the same time, the change of population structure, such as the deepening of aging and the shrinking of family size, has led to the transformation of housing demand from "quantity-oriented" to "quality-oriented", and the total demand for housing has entered a stable period. Second, the original development model has proven unsustainable. The "high leverage, high turnover and high debt" model has led to excessive concentration of funds in the real estate industry, and some real estate enterprises have serious problems such as excessive debt and tight capital chains, building up substantial hidden risks that threaten the industry's sound development. Third, structural imbalances have intensified. The supply structure of the real estate market is unbalanced, the supply of affordable housing is relatively insufficient, the housing prices in large cities are high, and the housing burden of new urban residents and young people is heavy. At the same time, the proportion of second-hand houses in the transaction structure has increased, and the weight of the stock market has increased, calling for industrial transformation. Fourth, macro policy regulation has guided the transition. The Chinese government has always adhered to the positioning of "housing is for living in, not for speculation", and has rolled out a host of regulatory policies to curb speculative demand, guide the rational return of the market, and promote the transformation and upgrading of the industry, which has accelerated the market adjustment process.

In response to the market downturn and potential risks, China has introduced a mix of short-term and long-term policies to stabilize the housing market and defuse related risks. In the short term, the government has focused on anchoring market expectations and alleviating capital pressure of real estate enterprises. In the long term, the government has focused on promoting the construction of a new development model, proposed to accelerate the construction of a dual rental-and-purchase housing system, strengthen the supply of affordable housing, promote the operationaltransformation ofreal estate enterprises, and establish long-term mechanisms for market regulation and risk prevention and control. In addition, the implementation of the three major initiatives (construction of affordable housing, urban village renovation, and construction of "dual-purpose in peacetime and emergency" public infrastructure) has become an important starting point to promote the stable development of the real estate market and the construction of a new model, which has effectively promoted the improvement of the market supply structure and the improvement of people's living conditions.

The market correction since 2021 is not only a process of risk release and industry reshuffling, but also a necessary transition for the real estate industry to abandon the extensive development model and embrace high-quality development. Building a new development model for the real estate industry is thus a strategic measure to ensure the stable operation of the national economy and improve people's well-being. The following sections will elaborate on the tasks for building this new model from four key dimensions.

A New Development Paradigm for China's Real Estate Sector: Four Key Priorities

The construction of a new development model for China's real estate industry is a systematic project. It should center on stabilizing the market, optimizing the structure, improving quality and ensuring "adequate housing for all", and coordinate the interests of the government, enterprises, financial institutions and residents, and making joint efforts to drive the high-quality development of the industry. The specific framework system and key tasks are mainly reflected in the following four dimensions.

Market Stability

Market stability is the premise and foundation for the construction of the new development model of the real estate industry. Only when the real estate market operates stably can we effectively defuse risks, protect the legitimate rights and interests of all parties, and provide a sound environment for the transformation and upgrading of the industry. The key to maintaining market stability lies in balancing supply and demand, stabilizing market expectations, and improving the long-term regulatory mechanism.

First, balance market supply and demand through the "people-house-land-money" linkage mechanism. The Chinese government has taken the formulation and implementation of housing development plans and annual plans as the starting point, reasonably determining housing demand according to population changes, scientifically arranging land supply, and guiding the allocation of financial resources, so as to realize the principle of "housing allocation based on population, land supply based on housing demand, and financial support based on housing development". For core cities with strong population inflows, residential land supply will be appropriately expanded to meet the growing essential and upgrade housing demands. For third- and fourth- tier cities facing severe population outflows and high inventory pressure, land supply will be reined in, and destocking will be accelerated through policies such as reducing down payment ratios and loan interest rates. In the future, the government will continue to standardize the development and operation behavior of real estate enterprises, curb excessive speculation and vicious competition, and maintain the balance between market supply and demand.

Second, stabilize market expectations through transparent and predictable policy guidance. The government has adhered to the positioning of "housing is for living in, not for speculation", and maintained the continuity and stability of regulatory policies to avoid large fluctuations in market expectations. More efforts are needed to strengthen policy interpretation, timely release market information, guide residents to establish a rational housing consumption concept, and avoid blind follow-up and speculative purchases. For real estate enterprises, the government has sent out signals to strengthen policy support for enterprises that actively transform and in line with high ESG standards, and guide enterprises to return to the main business of real estate development and operation, so as to enhance the confidence of enterprises and the market.

Third, improve the long-term regulatory mechanism to prevent and defuse market risks. The government has striven to improve the regulatory system of the real estate industry, strengthen the whole-process supervision over real estate development, financing, sales and property management, and plug regulatory loopholes. It will continue to reform the real estate development and financing model, promote the lead bank system, clarify the main responsibility of lead banks in project financing supervision, ensure the reasonable financing needs of project companies, and establish a risk-sharing and benefit-sharing mechanism between lead banks and project companies. The government has also vowed to strengthen the supervision of pre-sale funds, strictly control the pre-sale threshold, steadily advance the reform of the commercial housing pre-sale system, and gradually promote the existing-housing sales system, so as to fundamentally prevent delivery risks and protect the legitimate rights and interests of homebuyers—key measures to maintain the stability of the real estate financial system and avoid spillover risks to the broader financial market.

For the financial industry, maintaining the stability of the real estate market is a core prerequisite for preventing systemic financial risks, given the close linkages between real estate and the banking, securities, insurance and trust sectors. Financial institutions should adhere to the principle of prudent operation, rationalize the scale of real estate-related credit, optimize the structure of real estate credit by tilting towards rigid and improved housing demand, and standardize the financing support for real estate enterprises—prioritizing those with sound balance sheets and standardized operations. They should strengthen the full-cycle risk assessment and management of real estate projects, improve the risk pricing mechanism, avoid excessive concentration of credit risks in the real estate sector, and maintain the healthy circulation between finance and real estate. Additionally, financial institutions should actively innovate real estate-related financial products and services, such as rental housing REITs, green real estate loans, and asset-backed securities (ABS) for real estate enterprise transformation, to provide targeted financial support for the construction of the new development model.

Structural Optimization

Structural optimization is the core driving force for the transformation and upgrading of the real estate industry and an important part of the new development model. The structural optimization of the real estate industry mainly involves the optimization of the supply structure, the regional structure and the industrial structure, so as to realize the rational allocation of resources and the high-quality development of the industry.

In terms of supply structure optimization, the key is to establish a housing supply system that cater to the diverse needs of residents, and realize the organic combination of the market-oriented supply and government-subsidized affordable housing supply. It is anticipated that during the "15th Five-Year Plan" period, the government will release a series of policy packages to support the diverse upgraded housing needs of urban and rural residents, encourage real estate enterprises to raise the construction standards, boost the application of intelligent technology, and improve servicelevels.

In terms of regional structure optimization, the core is to align with evolving population mobility and urbanization trend, and promote the balanced development of real estate market among different regions. For first-tier cities and strong second-tier cities with strong population inflow and strong economic foundation, the government will focus on optimizing the supply structure of housing, increasing the supply of small and medium-sized commercial housing and rental housing, and curbing excessiv