WHAT IS THE OUTLOOK FOR THE CHINESE PROPERTY MARKET?

29.11.2023 The Chinese property market is commonly cited as a key reason behind the disappointing Chinese economic recovery this year. Below we look at its outlook for 2024.

The Chinese property market has been crucial to China’s impressive economic expansion in recent decades. Around seventy percent of Chinese consumers’ wealth is invested in housing. While the property sector has traditionally accounted for around thirty percent of China’s annual economic growth.

The origins of China’s property crisis are essentially two-fold. Population growth, which had been a tailwind for the sector for many years, came to an end. In fact, it has actually reversed and the population in China is now gradually falling. At roughly the same time the government launched a crack down on borrowing by Chinese property developers. This led to a credit crunch amongst the developers, which resulted in around fifty percent of firms in the sector going bust.

The immediate problem for the sector is that, due to the credit crunch, developers do not have access to the necessary funds to finish developments that have been started. Additionally, because of the fact that property is bought ahead of completion in China, buyers have been scared off because they fear that the developer won’t stay in business long enough to finish their property.

The Chinese authorities have introduced measures to try to boost demand, but to very little effect. They are also trying to increase the access to credit for the remaining solvent developers.

In the medium-term property prices need to fall significantly to reflect the reduced demographic demand. This process is being hampered by the Chinese authorities intervening in the market to limit how much property prices can be discounted. Another problem is that there are a lot of empty houses (around 12 percent of the housing stock) that were bought as investments when the housing market was going up. So quite a bit of this over-hang will also likely have to be cleared in order to bring demand into line with supply.

As outlined above the problems in the Chinese property are not going to be solved overnight. Indeed, they are likely to take a number of years to resolve. In the interim Chinese growth is likely to be a lot weaker, than it has been in recent years, at around 4%.

For information only. Investors should seek professional advice for their own circumstances before making an investment.

Categorised in: Uncategorised

This post was written by Robin