Fitch Ratings: The total sales of newly built residential properties in China will decrease by 15% to around 7.3 trillion yuan in 2025.

On January 22, the rating agency Fitch held a press conference in Hong Kong on the credit outlook for 2025. Fitch's Senior Director and Head of China Real Estate Ratings, Jin Tailun, stated that the operating environment for Chinese property developers will continue to be under pressure in 2025. Fitch predicts that due to a double decline in total transaction area and average selling price (down by 10% and 5% respectively), the total sales of new residential properties in China in 2025 will decrease by 15% to around 7.3 trillion RMB. Despite a series of policy measures introduced by the government to boost the recent sentiment in the real estate market, uncertainties remain as a result of high inventory levels, a weak job market, and relatively low housing affordability for buyers, leading to doubts about the long-term prospects of this sector. The real estate industry is still plagued by severe structural issues, such as high levels of existing property inventory and decreasing housing affordability for buyers. Despite recent policies aimed at boosting short-term market sentiment, the low rental yields in major cities lower than mortgage rates, for example indicate that there is still room for further decline in property prices. Despite the government's efforts to boost buyer confidence through various measures, it is expected that new residential property prices in 2025 will continue to be under pressure. Fitch expects that the continued weakness in the real estate market in 2025 will further suppress housing construction activity. Given the low willingness and capacity of property developers to acquire land and launch new projects, the construction area of new real estate projects may decline. Construction companies heavily reliant on real estate projects may continue to face challenges of reduced new orders and declining revenues, as property developers' cash flow and liquidity remain under pressure, making it difficult to resolve the issue of accounts receivable recovery. Regarding the operating environment for mainland China and Hong Kong's commercial real estate industry, Fitch expects that the operating indicators for Fitch-rated issuers will weaken, and oversupply and weak retail sales in the office market will lead to pressure on occupancy rates and rental rates. In the case of Hong Kong, Fitch predicts that by the end of this year, the vacancy rate for Grade A offices in Hong Kong will increase slightly from 16% to 17% in 2024, further rising to 18% to 19%, leading to a negative low double-digit rent adjustment rate for renewals. In addition, the weak retail consumption trend in mainland China and Hong Kong also raises the risk of potential rent reduction for retail properties and a decline in revenue sharing. Nearly half of the Fitch-rated Chinese property developers have a negative outlook. Since 2023, the number of rating downgrades initiated by Fitch has decreased, as many of the rated issuers are state-owned enterprises with high financial flexibility. However, the continued slump in the real estate industry is putting pressure on developers' sales revenue, profit margins, and cash inflows, reflecting that despite government policy support, the overall industry and individual companies still face sales risks. Key risks to monitor include the strength of government fiscal and monetary policy support, as such measures can boost buyer confidence and stimulate continued recovery in housing prices and sales volume. If the expected support is weak, it could accelerate the decline in property prices, increase mortgage delinquency rates, and negative asset numbers. Additionally, geopolitical tensions and trade protectionism may lead to economic growth slowdown, further dampening the sentiment of Chinese buyers.