What interesting insights can be gleaned by comparing Goldman Sachs’ and Morgan Stanley’s research reports on the real estate sector?

Goldman Sachs and Morgan Stanley—two of the world’s top-tier international financial institutions—have recently issued assessments and forecasts regarding the property market. This article synthesizes their respective views to reveal some intriguing observations. I. Institutional Consensus: The winter has not yet ended, but the ice is beginning to thaw. 1. Market bottom not yet solidified Both institutions agree that 2025 remains a phase of market clearance. Goldman Sachs estimates that unsold residential housing inventory nationwide exceeds 60 million units, with a digestion period stretching to 36 months. Morgan Stanley points out that, if unfinished projects are included, potential inventory could satisfy China’s urban population’s newly added housing demand over the next five years. This structural oversupply led to a 37.7% year-on-year decline in new home sales in 2024, with home prices in certain Tier-3 and Tier-4 cities falling more than 15%. 2. Diminishing marginal effectiveness of policy Although the People’s Bank of China cut reserve requirement ratios (RRR) cumulatively by 1.5 percentage points in 2024—releasing over RMB 2 trillion in long-term liquidity—new household mortgage lending shrank by 42% year-on-year. Goldman Sachs estimates that resolving the ‘project completion guarantee’ and inventory digestion issues would require RMB 8 trillion in fiscal spending—equivalent to 35% of China’s national fiscal revenue in 2024. Morgan Stanley offers a sharper critique: over the past two years, every RMB 1 billion invested in infrastructure has generated only RMB 0.2 billion in GDP growth—a 60% drop in policy transmission efficiency compared to a decade ago. 3. Irreversible urban divergence In Q1 2025, new home transaction volumes surged 18% year-on-year across 30 key monitored cities. In contrast, lower-tier cities saw overall transaction volumes decline by 12%. This divergence manifests directly in asset price movements: in Beijing’s Chaoyang District, second-hand home transaction prices rose slightly—by 0.3%—compared to the previous cycle; meanwhile, in a new district of a central provincial capital city, prices have fallen below their 2019 levels. II. Core Divergence: Two competing narratives on the path to recovery 1. Assessment of policy effectiveness • Goldman Sachs narrative: An RMB 8 trillion stimulus package (equivalent to 62% of China’s 2024 GDP) would establish a ‘policy floor.’ Its model projects that, with precise fund deployment, month-on-month home prices across China’s 70 major cities could turn positive by end-2025, and sales volume could recover to RMB 12 trillion by 2027—still 40% below the 2021 peak. • Morgan Stanley narrative: Warns that stimulus measures may exacerbate structural imbalances. Its calculations show China’s total real estate market value still stands at 350% of GDP (versus just 169% in the U.S.), meaning large-scale stimulus risks inflating new bubbles. It favors market-driven clearance to achieve natural equilibrium, forecasting sales volume will rebound only to RMB 9 trillion by 2027. 2. Economic momentum transition

Nomura Securities’ chief economist stated that China needs a narrative in which house prices will rise.

According to CNBC, Richard Koo—Chief Economist at Nomura Research Institute—told CNBC’s Steve Sedgwick last week that China needs people to believe home prices are rising in order to revive economic activity. Goldman Sachs’ analysis shows that, at the start of this year, both enterprises and consumers showed lukewarm interest in new loans—and home prices fell faster in January than in February. In other words, as Koo warned last year, China may be entering a “balance sheet recession,” similar to what Japan experienced during its prolonged economic downturn. “To get them borrowing again, we need a narrative telling them, ‘Okay, this is the price bottom—and prices will begin rising from here,’” Koo said. Yet it remains unclear whether prices have truly hit bottom. Analysts including Koo note that, in China’s policy-driven economy, the extent of the price decline has fallen short of expectations—given broader slippage across other facets of the property market. Chinese officials state that the real estate sector remains in an “adjustment phase.” China has also been emphasizing new growth drivers, such as manufacturing and new-energy vehicles. Analysts estimate that real estate and related industries account for at least one-fifth of China’s economy. The latest downturn began after China cracked down in 2020 on developers’ excessive debt reliance—coinciding with the shock of the COVID-19 pandemic. Koo points out that China’s population has also begun shrinking—a stark contrast with Japan, where population decline did not commence until 2009.

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