China’s real estate sector is navigating a critical phase of recovery, marked by attempts to stabilize the market and address underlying challenges. As the country grapples with a post-adjustment landscape, experts are evaluating the fundamental strengths of the market and the potential for a sustainable rebound. Key questions include whether the current sector adjustments have reached their conclusion, how to ensure long-term market stabilization, and how to strike a balance between new supply and local government fiscal revenue.
Historically, the trajectory of the property market recovery has followed a predictable pattern: sales growth drives price stabilization, which in turn boosts investment. Since 2005, commercial housing sales have typically preceded price increases by about four months in China’s 70 large and medium-sized cities. This relationship suggests that a rebound in property sales is essential to kickstart price stabilization and, ultimately, encourage investment.
The potential for China’s real estate market to recover is supported by three key factors: urban population growth, rising per capita living space, and the need to replace aging housing stock. From 2002 to 2017, the market’s demand grew from 980 million square meters to a peak of 1.78 billion square meters. However, as the market matures, demand is expected to decline, with projections indicating a reduction to 1 billion square meters by 2025, and a further drop to 300 million square meters by 2050. Despite the rapid adjustment over the last three years, residential sales have remained below potential demand levels, signaling that stabilization is achievable.
Recent trends point to a shift in consumer sentiment, with increasing purchasing power and reduced homebuying costs supporting a revival of market confidence. With accumulated savings and lower mortgage rates, household capacity to invest in real estate has improved. However, the critical challenge remains household expectations regarding home prices and income stability, which must be aligned for the market to fully recover.
The question remains: Has the period of adjustment come to an end? The real estate market has undergone substantial corrections since 2021, with significant reductions in housing sales and prices. By September 2024, housing sales were half of 2021 levels, with pre-owned home prices dropping by 15% in China’s 70 largest cities. Despite these adjustments, housing market conditions are showing signs of stabilization. The narrowing decline in home prices, especially in first-tier cities, signals the beginning of market recovery. Data from October 2024 showed a slight narrowing of year-on-year declines in new and used home prices, suggesting that the worst may be over.
To stabilize the market further, the government is focusing on key policy initiatives, including lower down payments, reduced mortgage rates, and broader economic measures aimed at boosting consumer confidence and market liquidity. Real estate remains a key asset for Chinese families, and its stability is essential to the broader economic health of the nation. Ensuring stable property prices is critical not only for household balance sheets but also for consumer behavior and future consumption trends.
Another pressing issue for policymakers is how to balance new property supply with local government fiscal revenue. In 2021, local land transfer revenue amounted to 8.7 trillion yuan, but projections for 2024 suggest a drastic decline to 4.4 trillion yuan. With land transfer revenue no longer sustainable in the long term, local governments must find new sources of income. The shift towards more transactions of existing homes, rather than newly constructed properties, further complicates this challenge.
Given this, a strategic focus on clearing out existing property inventories is crucial. Measures to activate the real estate market, such as encouraging property developers to launch projects and acquire land, will stimulate local land transfer activities and help balance the fiscal revenue gap. This approach is necessary to promote both market recovery and fiscal stability in the years ahead.
In conclusion, China’s property market is poised for recovery, but the path forward will require a delicate balance of stabilizing demand, boosting market confidence, and innovating fiscal policies. By addressing these key factors, the government can guide the market toward long-term stability, ensuring that China’s real estate sector remains a cornerstone of the nation’s economic development.
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