UBS’ China property optimist retreats from bullish calls, foresees deeper slump
News Summary
John Lam, UBS' head of China property research and a long-time contrarian, has retreated from his earlier bullish calls, joining Wall Street peers in predicting that the country’s four-year real estate downturn is far from over. Lam now expects home prices to fall for at least another two years before a recovery can take hold. A key reason cited is that potential buyers are increasingly opting to rent properties while prices decline, fundamentally changing housing price expectations. Global banks generally hold dim outlooks for China's real estate sector, with Fitch Ratings forecasting new home sales by area could decline 15% next year.
Background
China's property market has been under immense pressure since early 2021, impacted by a debt crisis among highly leveraged developers and the government's "Three Red Lines" policy. Despite various supportive measures by the government, market confidence has been slow to recover, and sales have remained sluggish. UBS analyst John Lam is known for downgrading China Evergrande Group 11 months before its 2021 default and took a bold bullish stance on the property sector last year. However, a renewed sales slump since Q2 2025, reflected in the steepest price declines in October, has prompted a reassessment of market outlooks by various institutions, including UBS.
In-Depth AI Insights
What does UBS's abrupt pivot reveal about the reliability of market signals and the efficacy of previous policy interventions in China's property sector? - UBS's shift indicates that market fundamentals, such as buyer behavior and sentiment, might be more powerful and persistent than short-term policy stimuli. Earlier bullish forecasts might have over-relied on supply-side policy support while underestimating structural changes in demand. - It also suggests that in an opaque market, even seasoned analysts can struggle to accurately identify true inflection points, with data potentially lagging or failing to fully capture the underlying depth of the crisis. - Policy interventions may have failed to fundamentally address underlying structural issues like excessive leverage and local government reliance on land finance, leading the market to relapse into a slump after brief rebounds. Beyond immediate price declines, what are the systemic risks of a prolonged property slump, and how might it influence China's strategic economic rebalancing efforts? - Erosion of Consumer and Investment Confidence: Real estate constitutes a significant portion of Chinese household wealth. Sustained price declines will severely hit consumer spending power and confidence, potentially deterring corporate investment in the real economy, creating a long-term drag on growth. - Heightened Financial System Risks: Banks face increased default risks on real estate-related loans. Local government finances are strained by reduced land sales, potentially slowing infrastructure investment and exposing hidden debt risks. - Impeded Economic Structural Transformation: China is striving to rebalance its economy from investment and export-driven to consumption and service-driven. A prolonged property slump could lead to resource misallocation, hindering the development of emerging industries like high-tech and advanced manufacturing, making the economic transition more complex and protracted. Given a U.S. administration under Trump potentially increasing economic pressure, how might this deepening property crisis impact Beijing's geopolitical calculus and domestic stability priorities? - Domestic Stability Over External Assertiveness: Mounting economic pressure, particularly the erosion of social wealth from the property market, may compel Beijing to prioritize domestic social stability. This could translate into a more pragmatic or relatively restrained stance on certain geopolitical issues to avoid external conflicts from exacerbating internal economic challenges. - Stimulus Policy Dilemmas: Any attempt to stimulate the economy might face risks of inflation or capital outflow, especially amidst global economic uncertainty and a strong U.S. dollar. If the Trump administration escalates trade or tech sanctions, it could limit China's ability to alleviate internal pressures through external trade. - Resource Reallocation: To address the property crisis and potentially escalating external pressures, Beijing might need to reallocate fiscal resources, increasing spending on social welfare and livelihood support to prevent social discontent, which could impact long-term strategic investments in areas like military and technology.