China Real Estate Turning Point: Caitong Flags 3 Key Drivers

April 22, 2026: China real estate market may be approaching a turning point as three underappreciated factors, lower effective mortgage rates, tightening housing inventory in Shanghai, and renminbi appreciation, begin to reshape sector dynamics, according to a new report by Caitong Securities.

The broking highlighted that blended mortgage rates have effectively declined to around 2.83% in major cities, while Shanghai’s housing inventory has dropped to 87,000 units with a four-month digestion cycle, signalling tightening supply-demand conditions.

Lower Effect in Provident Fund Mortgage Rate 

Caitong Securities noted that the housing provident fund interest rate, rather than benchmark lending rates, has become the primary determinant of mortgage costs. By the end of 2025, the average commercial housing loan rate stood at 3.06%, compared with 2.60% for provident fund loans with maturities exceeding five years.

In major first- and second-tier cities, provident fund loans account for more than 50% of total mortgage financing, reducing blended borrowing costs to approximately 2.83%. In cases where provident fund coverage reaches 100%, the effective rate falls further to 2.60%.

Coverage ratios exceed loan requirements in several cities, including Guangzhou (111%), Wuhan (195%), Chongqing (167%), Suzhou (106%), Zhengzhou (195%), and Wuxi (147%). Even in Beijing, coverage remains around 45%.

The national housing provident fund balance reached 10.9 trillion yuan by the end of 2024, rising 8.6% year-on-year. Contributions totaled 3.6 trillion yuan in 2024, while loans issued declined 11.4% to 1.3 trillion yuan, indicating continued accumulation of funds within the system.

Policy momentum is also increasing, with the 2026 Government Work Report calling for reforms to the provident fund system for the first time since 2015. Local authorities have introduced around 160 real estate-related policies this year, more than 60 of which target provident fund optimization.

Shanghai Inventory Signals Supply Tightening

While market attention has focused on transaction volumes, the report emphasized that declining inventory levels in Shanghai’s secondary housing market represent a more critical signal.

In March 2026, Shanghai housing inventory recorded 31,215 secondary home transactions, up 6.3% year-on-year and the highest level since March 2021. From November 2025 to January 2026, monthly transactions consistently exceeded 22,000 units, maintaining levels above 20,000 without additional policy support.

At the same time, the number of listed properties fell to 87,000 units in early April, down 33,000 units from its peak, representing a 28% decline. The inventory digestion cycle has shortened to four months, indicating faster absorption of available supply.

The decline in listings has been driven not only by transactions but also by sellers withdrawing properties from the market. According to the report, price stabilization has prompted some owners to retain assets for rental purposes rather than sell at lower valuations.

Price trends show early signs of stabilization. Lower-value housing segments (500,000–5 million yuan) recorded monthly price increases between 0.1% and 1.2% and quarterly gains of up to 2.7% as of March 2026. Mid- to high-end segments (5–30 million yuan) continue to see declining prices, though the pace of decline has moderated.

The easing of “sell-one-buy-one” transaction pressure, reflected in improving price ratios between housing tiers, suggests that the property upgrade chain is gradually recovering.

RMB Appreciation Impact Strength Expands Policy Space

The appreciation of the renminbi is identified as the least recognized but potentially most impactful factor. A stronger currency is expected to create room for monetary easing while boosting foreign exchange settlement inflows.

In March 2026, the USD/RMB exchange rate averaged 6.9, while both onshore and offshore RMB rates strengthened by over 300 basis points on April 8, reaching their highest levels since April 2023.

The report estimates that pending foreign exchange settlement funds could reach approximately $1.043 trillion. If 10%, 30%, or 50% of these funds are converted into RMB, it could inject 719.7 billion yuan, 2.16 trillion yuan, and 3.6 trillion yuan into M1 liquidity, respectively.

With total M1 at 119.3 trillion yuan as of March 2026, these inflows could drive M1 growth by between 0.6% and 3.0%. Historically, monetary expansion tends to lead real estate cycles by one to two quarters.

The easing of exchange rate pressure may also allow further interest rate cuts, potentially bringing mortgage rates below 3%, according to the report.

China Real Estate: Sector Valuations and Market Context

Caitong Securities report noted that the real estate sector remains in a valuation recovery phase, with market consensus yet to fully form. The sequence observed in previous cycles suggests that real estate stock prices typically bottom before housing prices in core cities and nationwide.

Historical examples from Japan and the United States indicate that stock market recoveries in real estate companies preceded property price stabilisation by up to three years. Following the U.S. financial crisis, analysts observed similar patterns, with major homebuilder stocks bottoming ahead of housing markets.

The report concluded that the combination of lower effective borrowing costs, tightening inventory in key cities, and improved monetary conditions could gradually shift market sentiment. It added that real estate stocks remain at low valuation levels with limited investor positioning, indicating potential for re-rating as these factors gain broader recognition.