CICC: The Turning Point in the Northern Housing Market Is Approaching

This round of the real estate cycle adjustment has lasted over four years. Considering recent changes on the supply side and policy front, we believe that this year Beijing and Shanghai housing prices are likely to stabilize. The real estate sector may gradually enter a beta phase. Investors are advised to consider three investment strategies based on their risk appetite: 1) Allocate to stable assets with obvious beta characteristics; 2) Focus on structural growth in real estate development, targeting products with strong competitiveness, high-quality inventories, and assets with deep valuation discounts and large potential elasticity; 3) Some private enterprises returning to the “table” to achieve substantial revaluation under oversold valuations.

Summary

Why do we believe Beijing and Shanghai housing prices may stabilize this year? The core reason for this real estate cycle adjustment is inventory, with second-hand housing inventory directly affecting marginal housing prices. We find a strong quantitative correlation between the inventory clearance cycle and housing price trends. Since the second half of 2025, the listing volumes of second-hand homes in Shanghai and Beijing have been steadily declining, and their clearance cycles have basically returned to a range where prices are expected to stabilize.

Is the stabilization of housing prices in Beijing and Shanghai sustainable? We observe that the decline in listing volumes in these cities does not stem from accelerated transactions but from a reduction in the volume or willingness to sell, evidenced by fewer new listings and more delistings. This differs significantly from previous policy-driven periods of stable prices. We believe this likely reflects a natural bottoming of social inventory. If transaction volumes remain stable and land market “control of new supply” is effectively implemented, the optimization of supply and demand conditions and price stabilization could be sustained.

What are the recent policy changes and how do they differ from previous ones? We highlight two points: First, policymakers are increasingly emphasizing “inventory reduction,” with potential for unexpected progress in housing stock absorption, such as pilot programs in Shanghai for second-hand housing stockpiling in three districts. Second, marginal adjustments to purchase restrictions in Beijing and Shanghai, while moderate and similar to past adjustments, could serve as catalysts and accelerators for price expectations entering a positive cycle, especially against the backdrop of bottomed-out social inventories in these cities.

Main Text

Introduction: Since the beginning of the year, housing prices have shown slight stabilization. How to assess the future trend?

Since January 2026, China’s housing prices have shown signs of stabilization, especially in leading cities like Beijing and Shanghai. In mid-January, the China Securities Index’s homogeneous second-hand residential transaction price index narrowed its month-on-month decline to -0.6%. Notably, high-frequency listing prices in Beijing and Shanghai have been flat or slightly increased (by 0.5%) since late 2025 through the Lunar New Year. There is much discussion about whether this temporary stability is driven by policy expectations, seasonal factors, or other short-term influences. How should we logically analyze the mid-term housing price trend and the turning point of the real estate cycle? We will attempt to answer this in this report.

Figure 1: China’s second-hand residential price trend

Source: Beike, other agencies, CICC Research Department

Figure 2: High-frequency second-hand housing listing prices in key cities

Source: Beike, other agencies, CICC Research Department

Inventory levels are key to prediction; Beijing and Shanghai housing prices may stabilize within the year

Second-hand housing inventory levels determine marginal housing prices

Inventory levels are a critical variable influencing China’s current housing price trend. In our previous report “2026 Real Estate Outlook: Striving Forward, Waiting for Opportunities,” we proposed a four-factor framework affecting short- to medium-term capital flow into real estate. Based on this framework, China’s housing demand remains adequate, leverage levels are healthy, and payment capacity has improved despite some local imbalances. The core issue is the high level of housing inventory. Inventory levels are typically measured by the inventory clearance cycle, which is the ratio of housing stock to transaction volume, reflecting the relative strength of supply and demand. A low clearance cycle implies housing shortages and, under loose liquidity, can drive price increases. Conversely, if the cycle cannot return to a reasonable level, even with ample liquidity, real estate will not be a major capital destination, and prices will remain under pressure.

Figure 3: Four factors influencing short- to medium-term capital flow into real estate

Source: CICC Research Department

The high inventory problem in this cycle exists on both the resident side (second-hand homes) and the enterprise side (new homes), more complex than the pre-2015 situation where only new home inventories were high. Starting in 2015, policies like urban renewal and monetization of shantytown reforms helped digest high new home inventories temporarily. However, demand surged rapidly, causing prices to rise sharply, and price controls on new homes led to demand overshoot. Developers, driven by inertia, continued to add to inventories, which temporarily increased after initial digestion. Meanwhile, rising prices and restrictions on second-hand homes caused inventories on the resident side to accumulate, culminating in a dual high inventory problem by 2021. The scale of this inventory issue is largely related to local land supply, timing of purchase restrictions, and the volume of first-time homebuyers. Although inventory problems exist across cities, the overall trend shows a gradual alleviation from lower-tier to higher-tier cities.

Figure 4: Actual sales area of new homes vs. potential midpoints

Source: National Bureau of Statistics, CICC Research Department

In this cycle, second-hand housing inventory on the resident side is a key indicator for marginal housing prices. As previously mentioned, before the downward cycle, second-hand inventories were already significant. When liquidity is still ample and prices can be maintained, homeowners may continue holding assets for appreciation. But as liquidity tightens and price decline expectations deepen, excess inventories will be sold off to cut losses, increasing second-hand listing volumes (“narrow inventory”) and exerting downward pressure on prices. Since buyers have varying willingness to accept losses and different liquidity conditions, sellers at various price points may be willing to list. Compared to second-hand homes, new homes have fewer sellers, rigid costs, and higher leverage, making their pricing more inflexible and slower to clear. Therefore, second-hand inventory clearance cycles are crucial for understanding the cycle stage. Monitoring these cycles helps interpret price trends, especially since the net contribution of new listings mainly comes from vacant and rental properties (“social inventory”). Although data on continuous monitoring is limited, this indicator remains valuable.

On the enterprise side, new home inventories are less indicative of cycle turning points. Since 2021, the broad inventory of new homes has been declining, with accelerated reduction in 2025 due to land stockpiling. However, the effectiveness of new home inventories as a predictor has diminished because prices are constrained by developer profitability, and some inventories are becoming “zombie” stock. Additionally, weak market expectations have led to more unstarted or halted projects, which cannot be effectively converted into inventories in the short term. Once market confidence recovers, new home inventories may regain predictive value.

Figure 5: New home inventory and clearance cycle

Source: National Bureau of Statistics, CRIC Data, CICC Research Department

Figure 6: Share of new starts relative to land acquisition

Source: National Bureau of Statistics, CICC Research Department

Beijing and Shanghai second-hand listing clearance cycles have returned to reasonable levels

Empirical evidence shows a clear quantitative relationship between second-hand clearance cycles and price movements. Cities with better supply-demand conditions, such as Shanghai and Beijing, may see prices stabilize first. For 16 key cities with available data, during periods before August 2021 when prices rose or remained stable, clearance cycles stayed below or within 7-9 months. Afterward, cycles rose above this range, with brief periods of stabilization during early 2023 and late 2024, coinciding with price stabilization. However, due to weak demand and ongoing inventory replenishment, this trend did not persist, and current cycles hover around 11-12 months. Each city has its own “price-stabilizing” clearance cycle range, influenced by listing market share and the volume of long-standing unsold inventories. Based on current clearance cycles relative to these ranges, we believe that in first-tier cities like Shanghai and Beijing, and some second-tier cities like Hefei and Chengdu, the social inventory clearance may be nearing its end, allowing prices to stabilize first.

Figure 7: Clearance cycles and price trends in 16 cities

Source: CRIC Data, Beike, CICC Research Department

Figure 8: Clearance cycles and price trends in major cities

Source: CRIC Data, Beike, CICC Research Department

Social inventory in Beijing and Shanghai appears to be bottoming out, supporting the sustainability of price stabilization

A detailed breakdown of second-hand listing structures in Beijing and Shanghai shows a natural bottoming trend in social inventory, further confirming the likelihood of sustainable price stabilization. Among the four cities, except Chengdu, all began a non-policy-driven decline in listings around late 2025: Beijing (from September), Shanghai (from September), Hefei (from June), with cumulative declines of 14%, 24%, and 16% respectively by January 2026. Chengdu’s decline is less pronounced but its absolute listing volume remains low, with clearance cycles staying within a reasonable range, and its cumulative price decline in 2025 was smaller than the industry average. The reasons for declining listings include fewer new listings, increased delistings, and stabilized transaction volumes—indicating that the reduction is driven by natural inventory bottoming rather than accelerated sales. As long as transaction volumes remain stable, the supply-demand balance and price stabilization are likely to be sustainable. This differs from previous policy-driven declines, which often involved increased new listings, slight reductions in delistings, and rising transaction volumes, reflecting policy-driven buyer entry and seller urgency. When transaction volumes fall, selling pressure can re-pressurize price expectations.

Figure 9: Breakdown of listings in Beijing, Shanghai, Chengdu, Hefei

Source: Beike, CICC Research Department

Policy emphasis on “inventory reduction” may accelerate price stabilization in key cities

The policy focus on inventory reduction has been renewed, with core cities potentially accelerating local price stabilization. The 2025 Central Economic Work Conference re-emphasized “inventory reduction” after 2015, signaling top-down attention. In February 2026, Shanghai began pilot programs for second-hand housing stockpiling in three districts, using market prices for storage, which directly impacts marginal prices. This pilot, with favorable timing, location, and support, could be expanded to other cities with similar conditions, especially if combined with demand-support policies and “control of new supply” measures, potentially speeding up price stabilization.

Figure 10: Real estate policy developments since December 2025

Source: Government official websites, CICC Research Department

“Control of new supply” may pose the greatest potential risk if not as expected

Despite optimistic signals, we highlight potential risks and structural differences:

1. If “control of new supply” falls short, it could hinder social inventory reduction. Historically, when prices stabilize temporarily, local governments and developers tend to increase land supply and purchase, which can lead to more new supply, triggering second-hand selling and demand diversion, thus interrupting inventory clearance and price stability. The divergence in price trends between high-tier and mid/low-tier cities in late 2025 may relate to this. Therefore, “control of new supply” remains a key risk to monitor.

2. Second-hand listing volumes are susceptible to noise from seasonal, technical, and exogenous factors. Year-end and New Year periods often see reduced activity, with subsequent rebounds. Regular cleaning of invalid listings by platforms can cause short-term fluctuations. External shocks, such as policy announcements, restrictions lifting, or market expectations shifts, can also temporarily increase listings.

3. Sharp declines in transaction volume due to external or internal risks require re-evaluation of supply-demand relations. The positive outlook assumes transaction volumes do not fall sharply. Given current levels, this is likely, but external shocks like geopolitical risks or internal financial risks could significantly reduce transaction activity, worsening supply-demand imbalance and risking further price declines.

4. Uneven regional inventory and expectation effects may slow the transition from partial to overall stabilization. Although some second-tier cities show declining listings since late 2025, the decline is modest and coincides with policy implementation, suggesting a temporary effect. Many second-tier cities still have high clearance cycles, and lower-tier cities’ inventories are rising. Overall, the pace of price stabilization may be slower than previous cycles, depending on regional dynamics.

Figure 11: Monthly second-hand listing volumes across 130 cities and regional levels

Source: Beike, CICC Research Department

Figure 12: New land supply and housing prices in super-high/high-tier cities

Source: CRIC Database, Beike, CICC Research Department

Figure 13: Housing price differences across city tiers in 2025

Source: Beike, CICC Research Department

Overall, second-hand inventory remains a key variable for China’s current housing cycle. Beijing and Shanghai’s listing clearance cycles have improved to levels conducive to price stabilization, with social inventory showing bottoming signs. Coupled with policy efforts, we expect prices in these cities to stabilize within the year. Continuous monitoring of fundamentals and local government “control of new supply” measures are especially important.

The real estate sector may gradually shift from policy-driven to a beta phase

The positive performance of core city prices may lead the 2026 real estate sector into a gradual beta phase. We review the sector’s monthly excess returns since July 2021. Historically, periods of significant positive excess returns coincided with policy adjustments, but since the improvements in fundamentals have been limited, the policy-driven boost has been pulse-like. Since January 2026, the sector’s excess returns are largely policy-driven, but with signs of initial improvement in social inventory and prices in Shanghai and Beijing, and further policy support, the sector may gradually enter a beta phase aligned with fundamental indicators. First, confidence rebuilds as prices stabilize locally, leading to valuation recoveries across assets. Our RNAV (re-estimated net asset value) calculations for 12 key developers show an average discount of 37% to market value, with more deeply discounted stocks potentially benefiting more from valuation repair. Additionally, differences in recovery pace across city tiers suggest that developers with larger land reserves in cities where prices stabilize first may see faster operational improvements, further boosting their stock prices. Apart from the four cities with low social inventory, Hangzhou warrants separate attention: despite still high second-hand inventory, high-quality new projects benefiting from strong local demand and high willingness to pay may develop independent trends, requiring further observation.

Figure 14: Sector excess return review

Note: Shenwan Real Estate Index excess return based on SSE and SZSE 300; Chinese property stocks excess return based on Hang Seng China Enterprises Index (HSCEI.HI)
Source: Wind, government websites, CICC Research Department

Figure 15: Year-on-year comparison of high-end residential sales in Beijing, Shanghai, Shenzhen, Hangzhou

Source: CRIC Data, CICC Research Department

Figure 16: Clearance speed of high-end residential projects in these cities

Note: For Beijing, Shanghai, Shenzhen, Hangzhou, high-end projects are defined as those with over 50 units sold and an average unit price above 15 million RMB (Beijing, Shanghai), 15 million RMB (Shenzhen), 10 million RMB (Hangzhou). Clearance speed is calculated from the opening date, with the endpoint being either the last date when cumulative sales are below 90% of total units or, if over 90%, the last date when the daily sales volume exceeds 0.5% of total GFA within 7 days.
Source: CRIC Data, CICC Research Department

This article is from: CICC Insights

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