Understanding Residential Real Estate in China

China's residential real estate sector plays an important role in the economy and has been a keydriver of growth. Since 2014 the sector has softened visibly, reflecting overbuilding across manycities. An orderly adjustment of the sector is welcome. The key questions are how severe theadjustment will be and how long it will last. This paper uses various datasets, an analyticalframework to estimate demand and supply conditions, and develops a number of scenarios todetermine the oversupply both at the national level and by city tiers. It highlights that the adjustmentwill be a multiyear process with adverse implications for investment and growth. Smaller cities, aswell as those in the Northeast region, face more challenging demand-supply dynamics. The keywill be to allow the adjustment to take place, while avoiding a too sharp of an economicslowdown.