China's housing market, widely described as stabilising in recent months, is masking a deeper structural problem: the apparent recovery is driven almost entirely by resale transactions rather than fresh construction, leaving the country's broader economic strains largely unresolved, according to a new report.

Resales Dominate, But Add Little to GDP

The share of second-hand home transactions in China has surged from roughly 27 per cent in 2020 to over 50 per cent in 2026, according to the report. While this uptick has provided some relief to market activity, analysts note it is fundamentally an ownership transfer — not new production. Beyond ancillary services such as brokerage fees, resale activity contributes little to gross domestic product (GDP).

By contrast, new residential construction, which is a significant direct contributor to GDP, continues to contract. The report states that property investment is expected to shrink by nearly 20 per cent this year alone, compounding fiscal pressures on local governments already starved of land-sale revenues.

Decades of Growth Model Now Unwinding

'As the economy for decades was fuelled by land sales, construction projects, employment, and demand for basic industry goods like steel and cement, it has seen a slow and steady downturn. This downturn further impedes GDP growth,' the report observed.

For years, China's growth engine ran on a property-led model: municipalities sold land to developers, developers pre-sold homes to buyers, and proceeds funded everything from local infrastructure to social services. That model is now visibly fraying, with consequences rippling through steel, cement, and construction employment.

The 'Presale' Model: A Structural Failure

The report singles out China's presale housing model — under which buyers pay for homes years before completion — as a textbook example of market failure. 'With money locked in for a long period, home buyers found themselves as unwilling creditors to the building companies,' the report noted.

This adverse experience, amplified by high-profile developer collapses in recent years, has pushed buyers decisively toward existing homes and away from off-plan purchases. The result: a reinforcing cycle where fresh housing investment continues to slump even as resale volumes recover.

Why the 'New Phase' Framing Does Not Hold

Chinese officials have sought to frame the resale surge as evidence that the market has entered a new, healthier phase. The report pushes back sharply, calling this a 'hollow narrative.' Second-hand sales stabilise turnover on paper, but they do not address the country's significant oversupply of unsold new homes, nor do they restore the construction-related employment and output that drove China's prior growth trajectory.

Notably, this divergence between official framing and underlying data is not new — Beijing has repeatedly signalled housing stabilisation since late 2023, yet new construction starts have continued to decline in most quarters since then.

What to Watch

Markets and policymakers will be watching whether Beijing rolls out fresh demand-side stimulus — including mortgage rate cuts or additional loosening of purchase restrictions in tier-one cities — to reverse the investment slide. Without a genuine recovery in new construction, the drag on China's GDP growth, and by extension on global commodity demand including India's steel and iron ore exports, is likely to persist well into 2027.