The rigid demand for housing in the real estate market is indeed getting less and less.

The "fundamental demand", a concept that countless real estate practitioners have taken as a muscle memory reaction, should be erased right now. What on earth will the demand for real estate evolve into? Before answering this question, we have to face one fact: there is no so-called fundamental demand in the real estate sector. This is both an observation and a result. As for whether it is a fact or not, it may not be that important.

01

There is some macro data I would like to share with you, which is also the core of our written push yesterday. The average transaction area of new residential properties in 50 cities this year is 120.6 square meters. This figure is quite beyond my expectation. Five years ago, this figure was just over 100 square meters. This is roughly the result of constant dripping wearing through stone, and the trend will become more and more obvious in the future. Data shows that for all unit sizes above 110 square meters, their proportion in total transactions has increased in the past two years. The market also implicitly reflects that large-sized units hold their value better: the two unit size segments with the highest value retention per square meter are 110-130 square meters, with a 4.1% increase in unit price, and over 150 square meters, with a 2.4% increase in unit price.

As units are getting larger and larger, it seems that the number of buyers with fundamental demand is decreasing. This real perception may be more acute in first-tier cities. Some time ago, I visited various sales offices in Shanghai and asked several project operators what proportion of current home buyers are first-time buyers and what proportion are second-home buyers. The result I got was a consistent ratio: 25%. Most of the people who are still buying properties in sales offices now are upgrading their homes or purchasing second homes. The number of customers who have never owned a property has dropped to a quarter, and the trend is declining further. In comparison, the proportion in several projects in the city center may be even lower. More and more project operators no longer expect a large influx of so-called pure fundamental demand buyers into sales offices.

So does fundamental demand still exist in the market? This issue needs to be viewed from two perspectives.

First, fundamental demand is indeed less than before. I have always thought that "fundamental demand" is actually a not-so-good term in the real estate industry, which subconsciously implies that a large number of people are bound to buy properties, that is, it firmly believes that a large group of people have no choice but to buy properties. This has also fostered the "wait-and-see group" — a situation where when a project encounters problems, the practitioners do nothing but wait and endure, and eventually some customers will come to buy properties because they can't hold on any longer. This is the perception of customers held by many people.

However, the reason why fundamental demand is decreasing is indeed related to the cycle of the times. The industry has developed for 20 years, and the surging housing prices in the past did drive a large part of fundamental demand into the market. At present, the per capita "ownership" of real estate in the market is already very high, and for most people, the reasons that force them to buy a property have decreased. Moreover, with the weakening of the support for housing prices, two viewpoints have emerged in the market: First, there is no need to hold multiple properties, because vacancy and operation will bring costs, which can no longer be hedged by the rise of housing prices; Second, for people who really do not own a property, renting can also well meet their housing needs.

Therefore, in essence, the relationship between developers and customers has begun to reverse, and a large number of "wait-and-see" customers have emerged. Even people who really need to buy a property feel that waiting will bring tangible benefits, and waiting and seeing may help them choose a better house. Essentially, the current stalemate in the market is the complete reversal of the identities of home buyers and home sellers.

02

In the future, the market will indeed form a pattern where new residential properties are mainly for improved housing demand, and second-hand properties carry the fundamental demand. This is actually related to the general trend. What will be the main theme of the real estate industry in the next five years? In fact, when almost all industries face overcapacity and shrinking scale, the core direction can be summed up in four words: trade-in. From the home appliance going to the countryside campaign in the 1980s to the rise of new energy vehicles now, the essential meaning is to reactivate production capacity through trade-in programs.

Nowadays, the real estate industry, whether in terms of demand development, policy orientation or industry trend, is all centered on the "trade-in" initiative, that is, housing replacement. Only by stimulating more people's willingness to replace their houses can this track be reactivated. The core of housing replacement lies in: providing better land in the city center, introducing better planning policies for the land, and then supporting it with targeted investment promotion. The goal is to create truly revolutionary communities in the market, so that users can buy a completely different quality of life under the premise of stable housing prices.

Where will the old production capacity go? The first destination is, of course, demolition. The part that cannot be demolished will become the supply for the urban rental market. Recently, the Shanghai municipal government has officially started purchasing second-hand properties to turn them into indemnificatory housing. In essence, this move is to control the new supply of land, and also absorb the large amount of old production capacity in the market. This action also implicitly encourages holders of multiple properties to launch rental operations, and generate long-term holding returns through long-term rental income.

Now the rental yield of houses in many cities is getting higher and higher. In 2025, the national average rental yield of real estate was only 2.2%, and recently it has reached 2.73%. The reasons behind this are: first, housing prices have dropped; second, the rent has increased through professional operation. In addition, another key factor is that the deposit interest rate of banks is getting lower and lower, so in a comprehensive comparison, buying a house for rental is also a pretty good business now.

Where else will some old production capacity go? To put it bluntly, it will become the housing choice for people who originally did not have the purchasing power to buy a property, and they will become the important absorber of this part of the production capacity. Only in this way can the trade-in cycle operate smoothly. New properties serve improved demand, and second-hand properties serve fundamental demand. Even fundamental demand buyers in the new property market show differentiation: the average transaction area of fundamental demand in new properties is 97 square meters, while that in second-hand properties is 79 square meters. This essentially shows that fundamental demand buyers in the new property market, even though it is their first home purchase, also expect a certain degree of improved living experience, while the second-hand property market represents the pragmatic choice of low total price.

03

If this sand table deduction is correct, there is another key step, which is my bold speculation: more first-tier and second-tier cities may control the new land supply in this round within 3 years. It should be noted that in the past two years, to be honest, the quality of land supply in every city is very high, and some high-quality locations that we thought were impossible to be supplied are now available in the market. But I don't think this is a long-term trend. The new land supply will definitely be further controlled within three years.

A very important reason is that the real estate industry needs the high-quality properties that enter the market in the past two years to realize their value in the second-hand housing market. The real estate industry must shift its confidence from pure housing price growth to confidence in product quality, but the confidence in product quality still needs to be supported by second-hand housing prices in the end. If huge investment cannot bring revolutionary products that achieve better prices in the market, then in the future, developers will not be motivated to improve the quality of their properties. Therefore, a very important point is that the new land plots in the past two years, whether they are fourth-generation residences, elevated platform communities or super infrastructure projects, need to remain relatively scarce in the future second-hand housing market, so as to realize good second-hand housing prices. Therefore, controlling new land supply will become an inevitable trend.

In this process, I believe that new alternatives to land finance will definitely be developed. No matter what form they take, corresponding reforms will definitely be launched within three years. At that time, the entire real estate market will truly enter the era of single-project priority: each project will become the hotspot and landmark of the city, and several scattered high-quality projects will drive the overall urban upgrading of the entire city.

So what do I want to express finally? In fact, every city has already prepared for the decreasing fundamental demand, and all actions and policies are being made to promote the essential transformation of the real estate industry. But on the other hand, as a real estate practitioner, are we still expecting the resurgence of fundamental demand? I have always thought that at this very moment, if we are still real estate practitioners, even if there is still fundamental demand in the market, we must firmly believe that fundamental demand no longer exists. Only with this mindset will we not take customers for granted, and will we strive to create and change things. Only in this way can we stay in the game all the time, and only in this way can we share the dividends of product quality improvement three years later.

For ordinary home buyers, the logic I have always believed in is: how to ensure that the house you buy can still be circulated in the market five years later. This also fits the future development trend. Maybe in the future, only a very small part of real estate can achieve a high premium, which is not achievable for most people, but you must ensure that your house has liquidity. This point is very critical: you must make sure that there are still people willing to take over your house in the future.

Therefore, you may as well carefully examine whether the house has advantages in terms of house age, whether its location is unique, whether its unit size is scarce, and so on. To put it simply, even if you are buying a house to meet your fundamental housing demand, you cannot buy it with the standard of fundamental demand. The past theories of "getting on the property ladder first" or "prioritizing low price" have all been broken now. For any house, if you are willing to buy it, it must have clear, distinct and well-founded advantages, otherwise don't buy it. This is the sufficient reason to ensure that the house still has liquidity in the future.

This article is from the WeChat official account "Zhen Jiao Lujun", author: Zhen Jiao Lujun, published with authorization from 36Kr.