The site of a real estate building under construction in Huai'an city, Jiangsu province, China, December 26, 2023.
PHOTO | Future publishing | Getty Images
According to Hao Hong, chief economist and partner at GROW Investment Group, China is facing a protracted real estate correction, with the overhang in housing stock likely to take more than a decade to clear.
“If you look at the inventory overhang situation – at this rate of sales – it will take about two years to sell off all the outstanding inventory in the market,” Hong told CNBC Street Signs Asia on Thursday.
“And then if you look at the properties under construction, we have 6 million square feet under construction. At this rate, it will likely take more than 10 years to clear all of the housing under construction. So all in all, we're in. I'm talking about several years in terms of correction,” he added.
Home sales growth and home prices have remained sluggish as real estate developers have been mired in a deepening debt crisis since 2020, when Beijing launched a broader deleveraging effort in the once-bloated real estate sector – which directly and indirectly accounts for about a third of China's economic activity.
The measures, known as China's “three red lines” policy, require developers to limit their debt relative to the company's cash flow, assets and capital resources. Real estate giants Evergrande and Country Garden are among the most high-profile victims among mainland real estate developers.
“At this point, people need to get used to the idea that it will probably take a lot longer to clear all of the inventory. At the same time, you need to find new growth opportunities for the economy instead of just relying on it.” “We only focus on the real estate sector and real estate investment for economic growth,” Hong said.
He said several market experts I didn't expect the real estate correction to last this long.
One needs to find new growth opportunities for the economy instead of relying only on the real estate sector and real estate investments for economic growth.
Hao Hong
Chief Economist at GROW Investment Group
In previous economic downturns, the real estate sector has responded quickly to economic stimulus and recovered after hitting bottom for two or three quarters, he added.
“This time it seems to us that the real estate sector has reached its peak and the long cycle is decreasing. As a result, the market is not ready for a long-term correction – so they are more used to a quick recovery. “Past experience – the market is surprised,” said Hong.
“As a result, market confidence and response will be affected by this lack of preparation.”
Despite numerous support measures, the ongoing real estate crisis affected consumer confidence and weighed on the overall economy.
That has led to calls for more aggressive stimulus measures amid fears the downturn in the world's second-largest economy could worsen.
In December, China's leaders pledged at the Central Economic Work Conference to allay risks associated with the real estate sector, local debt and small and medium-sized financial institutions, while announcing a strategy to build affordable housing.
At the same meeting, the leaders also stressed that the focus on quality development was crucial. They enacted a nine-point plan that included technological innovation in the industrial system, boosting domestic consumption, expanding high levels of foreign investment and revitalizing agriculture to improve food security.
China's central bank granted 350 billion yuan ($49 billion) According to a statement from the People's Bank of China on Tuesday, it lent to political banks under its pledged additional credit facility in December.
It was the first monthly increase since November 2022, when the Chinese government used the tool to boost its economy during the Covid-19 pandemic, raising expectations that the central bank could support infrastructure construction and the ailing real estate sector to boost growth .
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