Goldman Sachs said on Monday (June 16) that due to declining population and expectations of falling house prices affecting investment interest, the demand for new residential housing in Chinese towns in the coming years is expected to be 75% lower than the peak in 2017. This pessimistic forecast by the American investment bank casts another shadow over the stagnant real estate industry in China.
According to Bloomberg, analysts at Goldman Sachs wrote in a report, “Population decline and urbanization slowdown indicate a decrease in demand for housing. With owners selling vacant apartments, investment demand in China may turn negative.”
Therefore, they stated that the annual demand for new residential housing in Chinese towns in the coming years may be slightly lower than 5 million units, far below the peak of 20 million units in 2017.
For many years, the Chinese real estate industry has been mired in oversupply and towering debt. The real estate sector once accounted for nearly one-fifth of China’s total economic output.
On Monday, official Chinese data showed that the price decline for new homes in May hit a seven-month high, indicating the waning effects of last September’s stimulus plan. Data released by China’s National Bureau of Statistics on Monday showed that excluding subsidized housing, new home prices in 70 large and medium-sized cities nationwide fell by 0.22% compared to April, with a drop of 0.12% in April, indicating that the sustained trend of zero growth since May 2023 continues.
Goldman Sachs economists such as Andrew Tilton and Hui Shan cited their own calculations to suggest that the annual housing demand for urban residents in China will decrease by about half within a decade, from 9.4 million units annually in the 2010s to an average of 4.1 million units per year from 2025 to 2030.
The report mentioned that with expected price declines, owners of investment properties may become net sellers in the foreseeable future.
Despite a tariff truce agreement between China and the United States, it has not significantly boosted the Chinese economy. Against the backdrop of declining house prices, corporate profits and employee incomes are being squeezed, suppressing home purchasing demand and presenting a challenge for policymakers to reignite market vitality.
In a survey conducted in April covering 2,500 respondents, UBS found that expectations of further drops in house prices remain high. Analysts warn that such expectations may continue to inhibit home-buying behaviors and have a negative impact on market activity in the next few quarters.