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China's housing market continues its three-year decline in September, indicating that policy support has yet to ignite a broad-based recovery in housing demand, according to a Reuters analysis of data from the National Bureau of Statistics. New home prices dropped 0.1 percent month-on-month, mirroring August's decline, while annual prices fell 2.8 percent, lessening from a 3.0 percent drop in August.

The housing market's prolonged downturn has become a significant economic challenge, dampening consumer confidence and local government revenues. Unlike past years, when housing prices moved in tandem, the market has become increasingly fragmented. Major cities like Shanghai are recovering due to resale home sales, while second-tier cities are stabilising with policy support, but smaller cities remain weak with little chance of a near-term rebound.

The market appears on the brink of a cyclical inflection point, with economists predicting nationwide home prices will stabilise over the next one to two years. Policymakers are attempting to bolster the housing market in smaller cities by implementing a central bank and financial regulator policy to subsidise mortgage interest payments for eligible homebuyers, capping purchase prices at 1.5 million yuan (US$224,417).

Despite a faster-than-expected economic growth in the third quarter, driven by surging exports and strong factory activity, subdued household consumption and the ongoing property downturn are expected to continue weighing on the domestic economy, limiting broader spillovers from growth drivers.