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29 May 2026

Econ Digest

A fragile property market weighs on housing development loans, driving a contraction in 2026

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  • The real estate market continues to show signs of fragility. Although data for Q1/2026 indicate that private residential construction activity still expanded by 2.0% YoY as compared with the same period last year, this marked a slowdown from 4.0% YoY in Q4/2025, which suggests that momentum in the property sector has begun to weaken. Looking ahead to the remainder of 2026, the real estate market is likely to face continued challenges from slower economic growth, persistently subdued purchasing power, and a high level of unsold housing inventory. These conditions could intensify pressure on the financial position of property developers, particularly if housing sales and ownership transfers slow again, as this would directly affect their cash inflows. At the same time, financing costs and existing debt burdens remain elevated, limiting developers' ability to manage liquidity effectively and constraining the launch of new projects.
  • Credit risks among property developers are expected to increase amid liquidity challenges and increasingly difficult funding conditions. This is reflected in the gradual deterioration in developers' financial ratios over the past three years. In particular, the debt-to-equity (D/E) ratio has remained elevated at around 1.3-1.4x (1.38x in Q1/2026), while the debt service coverage ratio (DSCR) has remained low at approximately 0.27-0.37x (0.31x in Q1/2026). These indicators suggest that operating cash flo​ws may be insufficient to meet debt obligations maturing within the next 12 months, especially among developers with high inventory levels, substantial existing debt burdens, and heavy reliance on external funding sources.
  • These pressures are already reflected in the downgrades of certain property developers' credit ratings, as well as in a 27.6% YoY decline in long-term bond issuance during the first four months of 2026. Meanwhile, outstanding pre-financing loans in the commercial banking system contracted by 6.5% YoY in Q1/2026. Loans extended to low-rise housing developers and condominium developers declined by 7.9% YoY and 4.0% YoY, respectively. These developments indicate an increasingly cautious stance among both financial institutions and property developers, consistent with the trend of delaying new project launches while prioritizing inventory reduction and liquidity preservation over investment expansion. KResearch expects these conditions to persist into the second half of the year. As a result, housing development pre-financing loans in the banking system are projected to contract by approximately 2.0%-3.0% in 2026, compared with growth of 2.2% in 2025.

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