At Mercury, we often talk about how "Our legacy was built in stone, but our future will be built in code". Usually, I’m referring to banking and digital transformation. But today, I want to apply that same rigorous, data-driven lens to a different kind of code: Demographics.
There is a massive bug in how most investors view the property market in Mainland China. They are looking at current snapshots rather than the underlying algorithm. If you are holding onto physical assets expecting a rebound, you need to understand the concept of "Population Momentum."
Here is the strategic breakdown of why the numbers suggest we are heading toward a market correction that no policy can reverse.
TL;DR
- The Trap: Investors confuse Fertility Rate (percentage) with Birth Numbers (volume). A dropping rate on a massive population base still looks like growth—until the momentum shifts.
- The Lag: Demographics have a 15-20 year latency. Japan’s population kept growing for 16 years after their property bubble burst. China is now past that tipping point.
- The Reversal: Momentum works both ways. Now that the population is shrinking, no amount of government incentives (like the 2015 policy shift) can stop the acceleration of the decline.
- The Verdict: Real estate depends on people. With a shrinking workforce and an aging population, the supply of homes will vastly outstrip demand. Investing in residential real estate in this environment is capital destruction.
The "Population Momentum" Algorithm
In technology, we look for lagging indicators. In demographics, Population Momentum is the ultimate lagging indicator.
Think of a massive freight train. Even if you slam on the brakes (reduce the fertility rate), the train continues to move forward for miles due to its sheer mass and velocity.
The Japan Precedent (1990 - 2025)
Japan offers us the perfect historical A/B test.
- Japan’s "Lost Decades" lasted roughly 35 years.
- When their property bubble burst in the early 90s, fertility rates plummeted.
- The Illusion: Despite the crash, the total population continued to increase for another 16 years.
- The Reality: Once that momentum finally ran out, the decline began. Now, even as Japan’s economy stabilizes and fertility ticks up slightly, the total population is in freefall. The "brakes" applied decades ago are finally stopping the train.
The China Dataset (1950 - Present)
The situation in Mainland China follows the same code, but with higher volatility.
- The One-Child Policy Era (1979–2015): For 35 years, the government artificially suppressed the fertility rate.
- The Anomaly: Despite the policy, the population grew from 1 billion to 1.4 billion. How? Momentum. The base of parents was so large that even with fewer kids per family, the total number of humans increased.
- The Misconception: People saw the population growing and assumed the real estate market had infinite demand. They confused the result of past momentum with future growth potential.
The "Rate" vs. "Number" Bug
This is where the "violating common sense" illusion happens. It is a data visualization error.
- Fertility Rate: The speed at which we are adding new users.
- Total Number: The active user base.
When the Total Number (the base) is massive, you can have a plummeting Fertility Rate and still see total growth. But this is temporary.
Now, we are seeing the inverse. The "One-Child" generation is now the child-bearing generation. The base has shrunk.
- 2015 Shift: The government abandoned the One-Child policy to encourage growth.
- The Result: It didn't work. Fertility rates crashed to 1/3 of what they were when the policy ended.
- The Consequence: Because the base is smaller and the rate is lower, the "Population Momentum" has shifted into reverse.
Why Real Estate is a "Legacy Trap"
We tell our clients that "The world our clients live in has fundamentally changed". Nowhere is this truer than in the physical housing market.
According to the demographic momentum theory, China is tracking toward a Japan-style contraction, but at a faster velocity due to the rapid aging of the population (the "vehicle crash" scenario).
The Supply/Demand Mismatch:
- Oversupply: We have built enough housing and schools for a population projected to grow.
- Under-demand: We are facing a population destined to shrink.
- The Pivot: The demand is shifting from Residential & Education (schools, family condos) to End-of-Life Care (nursing homes, cemeteries).
As the source analysis suggests, investing in traditional residential real estate in this climate is essentially "seeking death". The market is flooded with inventory that the next generation simply does not exist to occupy.
The Next Step
If you are holding significant property portfolios in markets with negative demographic momentum, it is time to audit your asset allocation.
Just as we advise shifting from "Legacy built in stone" to a "future built in code", your investment strategy needs to move away from volume-based physical assets (which rely on population growth) and toward value-based digital or service assets (which rely on efficiency and technology).
