Fitch Ratings' forecast for China's new home sales improved to a drop of 7% from a previous 15% reduction given the better-than-expected performance of the property market in the first half of 2025, according to a Tuesday release.

Sales of new residential property by gross floor area will slip by 5% this year, a narrower estimate compared to Fitch's previous forecast of a 10% drop.

Meanwhile, average selling prices will fall by 2%, lower than the previous 5% estimate, Fitch said.

However, Fitch remains wary of heightened medium-term risks, with further sales divergence among varying city tiers.

The rating agency expects a slump in market performance for the second half, based on a 12% year-over-year decline in June sales in value terms.

A sector rebound continues to be uncertain and will depend on economic conditions, job market trends, and household income dynamics, Fitch said.

In the medium term, the property market will further observe structural headwinds such as demographic changes, low housing affordability, and increased unsold inventory, with lower-tier cities bearing most of the brunt, according to Fitch.

Meanwhile, luxury and high-end projects in tier one cities showed strong performance amid healthy demand for prime-location assets among high net worth individuals, Fitch said.