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hina's real estate sector has been struggling with a downturn for years, and now a shrinking population is casting another shadow over the stagnant property market. Goldman Sachs estimates that demand for new homes in Chinese urban cities will remain suppressed at under 5 million units per year in the coming years, down from a peak of 20 million units in 2017.

    The country's population is expected to fall to below 1.39 billion by 2035 due to a combination of fewer newborns and more deaths from an ageing population. This will lead to a decline in home demand, with Goldman Sachs estimating that the shrinking population will cripple home demand by 0.5 million units every year in the 2020s and 1.4 million units annually in the 2030s.

    Despite Beijing's efforts to incentivize child-bearing via cash incentives, fertility rates have continued to fall since the relaxation of the one-child policy in 2016. Stagnant incomes, job instability, and a poor social security system have dissuaded young people from having more babies. Beijing's pronatalist policies are unlikely to have a significant impact on birth rates.

    The decline in population is already affecting school-adjacent housing markets, where prices were once inflated due to demand for better public schools. With local governments scaling back district-based enrollment policies and the number of students in preschools falling by over 10 million, the added value of these homes has started diminishing.

    New home prices fell at their fastest pace in seven months in May, extending a two-year stagnation despite government efforts to arrest the decline. New home sales in 30 major cities fell by 11% year on year in the first half of this month, worsening from the 3% drop in May. Goldman Sachs estimates that holders of investment properties will likely be net sellers for the foreseeable future due to expectations that home prices will continue to fall.

    While some decline may be offset by continued urbanization and housing upgrade demand, demographic drag on the property market is not yet imminent and may take decades to play out.