According to a recent survey conducted by Reuters, the policies to support the real estate sector by the Chinese authorities are proving to be ineffective, leading to a faster than expected decline in housing prices in China over the next two years.
The survey, conducted from August 26th to 29th, revealed that the housing prices in China are projected to drop by 8.5% in 2024, compared to a 5.0% decline forecasted in May. For 2025, it is anticipated that real estate prices could fall by 3.9%, which aligns with the previous forecast.
Ma Hong, a senior analyst at Guokai Holdings Research Institute, pointed out that the actual funding sources for real estate developers have significantly shrunk, impacting housing demand. She expressed concern over the cash flow pressures faced by major real estate companies, which are expected to continue growing, consequently putting pressure on the confidence in the real estate market.
Since 2021, China’s real estate crisis has entered its fourth year, with a considerable inventory of newly built apartments leading to a substantial reduction in developers’ cash flow. This situation has severely affected housing prices, consumer confidence, and various sectors from the job market to consumption and household wealth.
The survey also indicated that real estate sales in China in 2024 could decline by 16.0%, which is more severe than the earlier forecast of a 10.0% decrease. Additionally, investment is expected to decline by 10.3%, exceeding the 10.0% decrease predicted in May.
Wang Xingping, a senior analyst at Fitch Solutions, highlighted the adverse impact of economic uncertainties on home purchasing decisions. Although supportive policies continue to be introduced, their effectiveness in reversing the downward trend remains insufficient.
In July, the CCP leaders pledged to support the delivery of unfinished projects and convert unsold apartments into economically practical housing to bolster the real estate industry. However, the CCP’s plan to tackle the real estate mess is progressing slowly. According to data from the central bank, only 4% of the 300 billion yuan (42.3 billion US dollars) refinancing plan aimed at clearing residential inventory is borne by local governments and state-owned enterprises.
This week, as a series of disappointing financial reports from consumer goods companies emerged, UBS Investment Bank downgraded its China economic growth expectations, exacerbating concerns about the deteriorating outlook. UBS revised China’s 2024 Gross Domestic Product (GDP) growth forecast from 4.9% to 4.6% and lowered the 2025 GDP growth forecast from 4.6% to 4% due to the greater than expected decline in China’s real estate sector.
This downgrade reflects a growing consensus among global banks that China may not achieve the around 5% growth target in 2024. China last missed this target in 2022, during the period of lockdowns due to the COVID-19 pandemic.