China’s property crisis to extend into 2026, threatens banks’ asset quality: Fitch

[SHANGHAI] China’s multi-year property crisis is set to drag on in 2026 and further weigh on banks’ asset quality, even after the government stepped up its stimulus push to boost demand, according to Fitch Ratings.

The country’s new home sales by area may decline 15 to 20 per cent from their current level before the sector stabilises, Lulu Shi, a director at Fitch, said at a briefing in Shanghai on Wednesday (Oct 29).

Transactions by value may drop another 7 to 10 per cent next year, she added.

“China’s trickling stimulus measures did not pull the residential sector from a further slowdown,” Shi said. “A meaningful property recovery will only come after the job market stabilises and household income rebounds, which would require a basket of policies and a long period of time.”

On the bright side, the measures to backstop the property sector has prevented “a hard landing” because there won’t be another wave of developer defaults, which would shatter homebuyer confidence if it happens, Shi said.

China’s four-year property downturn has derailed the world’s second-largest economy, which grew at the slowest pace in a year in the third quarter. The prolonged price slump is deterring homebuyers who are increasingly concerned about the viability of real estate as a store of wealth.

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The dim outlook for the domestic home market also means banks’ bad debt in the property segment will likely remain “elevated” next year, Vivian Xue, director for financial institutions at Fitch, said at the same briefing. That, coupled with households’ weakened ability to repay mortgages and other personal loans, means that banks’ asset quality could deteriorate next year, she added.

The nation’s lenders are expected to keep up the momentum in 2026 to dispose of bad loans either through direct write-offs or transfers to asset management firms, according to Xue.

Chinese banks had 3.4 trillion yuan (S$620 billion) of non-performing loans at the end of June, nearing the peak last March, according to official data. BLOOMBERG