Is China recovering?

The beginning of the Year of the Snake seems to have been an auspicious sign for the luxury landscape in China. According to the latest reports from the National Bureau of Statistics, Shanghai recorded a 0.4% month-on-month increase in new home prices in January, the highest growth among the country's 70 major cities. According to YiCai Global, more than 7,500 existing homes were sold in the first half of February, with projections exceeding 15,000 units by the end of the month—a level of activity not seen since 2022. This is a particularly interesting signal, considering that the Lunar New Year period is typically not a peak time for real estate transactions. In general, since the start of the year, forecasts for the real estate sector—which has been considered one of the main causes of last year's luxury crisis, as properties represent over 70% of household wealth according to the People’s Bank of China—are becoming more optimistic. Real estate agency Centaline Property reports that, as of mid-February, the market for new residential buildings has grown by 63% on a monthly basis. However, in the rest of China, the situation remains stagnant, with minor fluctuations (around 0.1%) in Beijing, Guangzhou, and Shenzhen. According to calculations by Reuters, national new home prices have remained largely stable, while prices for existing homes in second and third-tier cities have declined by 6.0% and 8.2% year-on-year, respectively. So, is China really in recovery?

Yes and no: the central government in Beijing is working to stabilize the real estate market and, consequently, support related sectors, including luxury. However, the fundamental issue remains the structural fragility of China’s entire real estate sector. Despite positive signs in Shanghai, the overall national outlook remains uncertain. The crisis among major developers has yet to be resolved, as evidenced by the 42 billion RMB bailout granted to China Vanke, one of the country's largest real estate groups, as reported by JingDaily. The real estate market, long a pillar of economic growth and household wealth, is now undergoing a fundamental shift: The Diplomat reports that new construction has declined by more than 60% compared to pre-pandemic levels, one of the steepest drops worldwide in the past thirty years. These factors inevitably impact the luxury sector, as demand for high-end goods is closely tied to the financial stability of China’s middle and upper classes, who have traditionally viewed real estate as the primary form of investment and wealth preservation. The slowdown in real estate transactions in many second and third-tier cities, along with declining home prices, suggests that a significant portion of the population may be less inclined to spend on luxury goods in the short term, particularly if their perceived wealth continues to erode.

Another crucial factor for a solid real estate (and luxury) market recovery is the willingness—or at least the ability—of younger generations to invest in property. According to The Diplomat, over the past decade (2010-2020), the percentage of Chinese citizens aged 25 to 34 who own a home has declined from 70% to 50%, with rental rates reaching nearly 30% in major metropolitan areas. This trend has significant implications for the luxury market, as homeownership has traditionally been the first step in wealth accumulation and subsequent spending on high-end goods. However, this shift is not necessarily due to changing attitudes but rather to a lack of financial resources: more than 70% of new homebuyers rely on parental savings for their down payment, highlighting that without substantial family support, many young people would be completely excluded from the housing market. As a result, their purchasing power for luxury goods could experience a long-term structural decline.

So, is luxury in China truly recovering? It depends. If we look solely at the rebound in real estate sales in Shanghai, the answer might be yes. However, a broader perspective reveals a more complex picture: luxury cannot thrive without a stable economic foundation. According to JingDaily, the encouraging data from Shanghai should not be ignored, though for now, they remain an anomaly. At the same time, the deep correlation between real estate and luxury spending suggests that as long as the sector remains fragile, high-end consumption will continue to suffer, with widespread negative effects in the short term. However, if this real estate recovery extends beyond Shanghai and spreads to key luxury markets, then—and only then—could we confidently say that China is leading a new era of luxury consumption. After all, 2025 has only just begun.