• Fri. Feb 23rd, 2024

    China’s Housing Demand Predicted to Drop, Challenging Economic Growth

    BySharna Bass

    Feb 2, 2024
    China’s Housing Demand Predicted to Drop, Challenging Economic Growth

    The demand for new housing in China is expected to decline by approximately 50% over the next ten years, posing a challenge for Beijing in bolstering the country’s overall growth, according to the International Monetary Fund (IMF). The IMF’s latest staff report on China, released in late December, highlights the declining fundamental demand for new housing due to a decrease in new urban households and a surplus of unfinished or vacant properties.

    This predicted drop in housing demand will make it more difficult for China to absorb excess inventory, thus prolonging the adjustment period and impacting overall growth. China’s real estate sector has played a significant role in the country’s gross domestic product (GDP), accounting for approximately a quarter of its GDP. The recent downturn in the property market follows Beijing’s crackdown on developers’ reliance on debt for growth in 2020.

    While the IMF report suggests a 50% decline in housing demand, Zhengxin Zhang, China’s representative to the IMF, contests the prediction, stating that it overestimates the possible market downturn. Zhang believes that China’s housing demand will remain substantial, and policy support will gradually come into effect. He also questions the rationality of the base period selected for comparison.

    China’s rapid growth in the real estate sector over the past few decades has prompted authorities to discourage speculation and emphasize that houses are primarily for living, not for investment purposes. The IMF report acknowledges that the correction in the property market, following the government’s efforts to contain leverage in 2020-2021, was necessary and needs to continue.

    To address the overall decline in the sector, Chinese authorities have taken steps to ease financing restrictions for developers and new homebuyers since late 2022. However, these efforts have not yet significantly halted the broader decline in the real estate sector. Consumer confidence has dropped, and Chinese stocks have also fallen.

    The IMF report suggests that a “proactive” fiscal policy is necessary to prevent and resolve local government debt risks. Chinese authorities view the fiscal stance in 2023 as proactive and aim to maintain it in the future. Additionally, the IMF recommends further monetary policy easing and reforms to support China’s economic growth.

    China’s economy grew by 5.2% in 2023, lower than the IMF’s previous prediction of 5.4% due to weaker-than-expected consumption in the fourth quarter. The IMF expects China’s growth to slow to 4.6% in 2024. Looking ahead, inflation is predicted to increase to 1.3% this year, with falling energy and food prices being the main factors that weighed down prices in 2023. While housing has typically boosted inflation in other countries, the real estate slump in China has had the opposite effect.

    FAQ Section:

    1. What is the prediction regarding housing demand in China?
    – The International Monetary Fund (IMF) predicts that housing demand in China will decline by approximately 50% over the next ten years.

    2. Why is the decline in housing demand a challenge for Beijing?
    – The decline in housing demand makes it more difficult for China to absorb excess inventory, thus prolonging the adjustment period and impacting overall growth.

    3. How significant is the real estate sector in China’s GDP?
    – The real estate sector accounts for approximately a quarter of China’s gross domestic product (GDP).

    4. What led to the recent downturn in China’s property market?
    – Beijing’s crackdown on developers’ reliance on debt for growth in 2020 contributed to the recent downturn in the property market.

    5. How does Zhengxin Zhang, China’s representative to the IMF, respond to the prediction of a decline in housing demand?
    – Zhang contests the prediction, stating that it overestimates the possible market downturn. He believes that China’s housing demand will remain substantial, and policy support will gradually come into effect.

    6. What efforts have Chinese authorities made to address the decline in the real estate sector?
    – Chinese authorities have taken steps to ease financing restrictions for developers and new homebuyers since late 2022.

    7. What fiscal policy does the IMF recommend to prevent local government debt risks?
    – The IMF suggests a “proactive” fiscal policy to prevent and resolve local government debt risks.

    8. How has China’s economy performed in recent years?
    – China’s economy grew by 5.2% in 2023, lower than the IMF’s previous prediction of 5.4%. The IMF expects China’s growth to slow to 4.6% in 2024.

    Definitions:
    – Gross Domestic Product (GDP): The total value of goods and services produced within a country’s borders over a specific period.
    – Fiscal Policy: The use of government revenue and expenditure to regulate and stabilize the economy.

    Related Links:
    IMF – China
    IMF – Real Estate Market in China