In China, unfinished buildings are visible everywhere. (Screenshot from X Platform)
October 30, 2024 - Analysts from three research institutions predict that even with the latest stimulus measures, China’s troubled real estate industry may not see improvement until the second half of next year, and the downturn is expected to continue for several years.
Goldman Sachs analysts predict that China’s real estate prices will stabilize by the end of 2025, with an average increase of 2% two years later. However, real estate sales and new home construction are unlikely to stabilize before 2027. S&P Global and Morgan Stanley also issued reports forecasting that China’s real estate market will hit bottom in the second half of 2025.
Edward Chan, director of S&P Global, and his team stated in a report: “If the government continues to prioritize financing support for developers and inventory reduction, we believe China’s real estate sales and prices may stabilize in the second half of 2025.”
However, Chan also cautioned that policy takes time to take effect.
The Chinese authorities have clearly stated that the priority of economic policy is to support advanced manufacturing as a new driver of economic growth. The secondary priority is to support the troubled real estate industry. However, this is not an easy task, as real estate once accounted for more than a quarter of China’s gross domestic product (GDP) and is closely tied to household wealth and local government finances.
Goldman Sachs’ forecast assumes that Chinese authorities will increase fiscal spending by an additional 8 trillion yuan (about $1.12 trillion). Analysts warn that without such a large-scale stimulus, the downturn in the housing market could extend for another three years.
They stated that such support needs to address liquidity issues for developers, reduce unsold housing inventory, and ensure that pre-sold homes are actually delivered.
At the end of last year, Nomura Securities estimated that China had approximately 20 million pre-sold homes still incomplete. In September of this year, Chinese officials reported that about 4 million homes had been completed and delivered to buyers.
Analysts expect that about 30% of the unsold inventory may never be sold, requiring banks or other entities to bear the cost.
Furthermore, stabilization of the housing market does not mean a full recovery. Analysts predict that home sales and the rebound of new residential construction will remain sluggish in the coming years.
S&P estimates that China’s real estate sales will drop to below 9 trillion yuan this year and further decrease to 8 trillion yuan in 2025, less than half of the 18 trillion sales figure from 2021.
Analysts attribute the decline in sales to an increase in unsold housing inventory, which forces developers to adopt price-cutting measures to attract buyers.
Standard analysts noted that worsening sales further impact developers' liquidity, leading to a “lack of confidence,” and developers will become increasingly cautious about acquiring land and starting new projects.
S&P, citing official Chinese data, analyzed that compared with the 2019 peak, the number of new projects started in 2023 had decreased by 42%. In the first eight months of 2024, it dropped another 23% year-over-year.
Goldman Sachs analysts commented: “We believe the scale of support is still not large enough, and there are implementation challenges in stopping the current downward spiral.”
They warned that if policies are not adequate, real estate prices could drop another 20% to 25%.
(This article references relevant reports from CNBC)
Responsible Editor: Li Lin
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