Handling the disastrous real estate crisis in China is like walking on thin ice for the Communist Party of China. The number of unsold residential properties in China is enough to accommodate all families in California and New York, or all families in Germany.
Most analysts agree that the CCP’s 300 billion yuan rescue measures to address the oversupply of unsold homes fall far short of what is needed.
The relief measures introduced by the CCP last week on May 17th, including the highly anticipated 300 billion yuan affordable housing refinancing, are seen as insufficient and too little, too late in the face of the massive real estate funding gap and the catastrophic real estate crisis.
Following the introduction of the relief measures, the stocks of most Chinese real estate developers continued to decline.
Goldman Sachs analysts point out that the Chinese real estate sector faces three main issues. Firstly, property developers need to complete pre-sold but unfinished houses, as many potential buyers are still waiting on the sidelines, anticipating further price drops.
Secondly and most importantly, efforts are needed to stimulate housing demand and ease the contraction in real estate construction, which is the most challenging aspect—reviving consumer confidence and boosting home prices.
Since 2024, the downward trend in Chinese property prices has shown no signs of stopping, with the latest data indicating a 10% decline this year.
According to Goldman Sachs’ estimates, by the end of 2023, China’s available housing stock will amount to 13.5 trillion yuan, requiring an additional investment of 5 trillion yuan to complete due to unfinished construction.
In comparison to the funding gap, the CCP’s announced 300 billion yuan affordable housing refinancing falls far short and is only a drop in the bucket.
Arthur Budaghyan, Chief Emerging Markets/China Strategist at BCA Research, told The Wall Street Journal that Beijing needs to inject at least 5 trillion yuan into the troubled Chinese real estate sector for a meaningful impact on the broader economy.
He emphasizes that this money needs to be spent quickly rather than gradually over three to five years. “The question is how much, when, and how fast,” he said.
Economists Michelle Lam and Wei Yao of Societe Generale in Greater China stated in a research report that the rescue plan needs to be expanded and detailed policies are necessary, especially for the low-tier city real estate markets.
Economists have been urging Beijing to implement strong measures to boost the economy, but the policies in the past two years have had minimal effect, partly due to the ideological preferences of the CCP leadership.
Many economists argue that the Chinese economy fundamentally needs market relief, more measures to assist real estate developers in debt restructuring and completing unfinished projects, as well as direct subsidies to boost buyer confidence.
However, Beijing has been reluctant to implement market rescue measures. The Wall Street Journal reported in 2023, citing sources, that this reluctance is partly due to the leadership’s preference for tightening ideology.
The external environment has also become increasingly challenging. Last week, the US government announced new tariffs on China, and the EU may follow suit. Former President Trump stated that if re-elected, he would impose further measures, including a 60% tariff on imported Chinese products.
One study estimates that Trump’s proposed 60% tariff could lead to a decrease in China’s economic growth rate by as much as 0.9%.
Financial Times columnist Xu Jin wrote, “Without a strong economy, it’s difficult for house prices to rebound.”
An economist survey published by Reuters on Monday, May 20th, revealed that as real estate investment and sales continue to deteriorate, property prices in China will fall at a faster pace.
The survey predicts a 5% decline in new home prices in 2024, compared to the 0.9% decline forecasted in the same survey conducted in February. It also suggests that new home prices in 2025 may remain unchanged, a contrast to the 0.5% growth forecasted in February.
The survey was conducted between May 10th and 17th.
Furthermore, the survey indicates that home sales in 2024 may decline by 10%, significantly worse than the previous forecast of 5%; and real estate industry investment in 2024 is expected to drop by 10%, higher than the earlier forecast of 6.1%.
Many analysts believe that to support the real estate market in the short term, the Chinese authorities will have to roll out more stimulus measures.