S&P Downgrades Outlook as China Property Crisis Becomes Entrenched
Beijing, Wednesday, 11 February 2026.
S&P Global Ratings now forecasts a 14% contraction in China’s 2026 property sales, signaling an accelerating downturn rather than stabilization. With market volume already halved since 2021, analysts warn the crisis is structurally entrenched, leaving government intervention as the only viable escape from this vicious cycle.
A Steepening Trajectory
The trajectory of China’s real estate market has shifted from a gradual correction to a steepening decline. In early February 2026, S&P Global Ratings revised its forecast for primary property sales, projecting a contraction of 10% to 14% for the year [1]. This marks a sharp downward adjustment from the agency’s October 2025 outlook, which had anticipated a more moderate drop of 5% to 8% [4]. The severity of this downturn is underscored by the sheer erosion of market volume; primary sales in 2025 fell to 8.4 trillion yuan ($1.21 trillion), a drop of -53.846% from the 18.2 trillion yuan peak recorded in 2021 [1][4]. This data suggests that despite various policy efforts, the market floor remains elusive.
Price Erosion Across Major Markets
Compounding the volume collapse is the persistent erosion of asset values. S&P analysts now estimate that home prices will slide by an additional 2% to 4% in 2026, extending the losses observed throughout the previous year [2][3]. While Shanghai managed to buck the trend with a 5.7% price increase in 2025, other Tier 1 cities did not fare as well; Beijing, Guangzhou, and Shenzhen all recorded declines of at least 3% during the same period [1]. This broad-based depreciation is fueling what analysts describe as a “vicious cycle” where falling prices deter potential buyers, further swelling inventory and depressing prices [2][4].
Structural Risks and Financial Contagion
The crisis has evolved from a cyclical downturn into a structural constraint, with S&P warning that the slump is now “entrenched” [2]. The stress is becoming increasingly visible among major developers; late in 2025, China Vanke, a bellwether for the industry, sought to delay repayment on portions of its debt [1]. The rating agency has flagged that if sales fall just 10 percentage points below their base case for 2026 and 2027, four out of the ten rated Chinese developers could face downward pressure on their credit ratings [4]. This environment leaves the government as the primary entity capable of absorbing the massive excess inventory, potentially through acquisitions for affordable housing schemes [2].
Economic Headwinds Persist
While the property sector—which once accounted for over a quarter of China’s economic activity—drags on growth, other sectors are struggling to fill the void [2]. Although S&P raised its 2026 GDP growth forecast for China to 4.4% [4], and CBRE forecasts a slightly higher 4.5% [6], structural challenges remain. Research from Rhodium Group in January 2026 indicated that China’s aggressive push into high-tech industries is currently insufficient to offset the heavy drag created by the property market’s contraction [1]. With policymakers expected to outline economic priorities in March 2026, the pressure is mounting for bolder measures to break the deflationary spiral that threatens to extend into 2027 [4].