The site of a real estate building under construction in Huai’an City, Jiangsu Province, China, December 26, 2023.
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China faces the prospect of a long-term correction in the real estate sector, with the surplus in housing stock likely to take more than 10 years to clear, according to Hao Hong, chief economist and partner at GROW Investment Group.
“If you look at the situation of excess inventory — at this sales rate — it will take about two years to clear all the outstanding inventory in the market,” Hong told CNBC Street Signs Asia on Thursday.
“And then, if you look at the real estate under construction, we have 6 million square meters under construction. At that rate, it will probably take more than 10 years to vacate all that housing under construction. So, in total, we’re talking about many years of Where is the correction?
Growth in home sales and prices has remained sluggish as property developers have been mired in a spiraling debt crisis since 2020 when Beijing began a broader deleveraging process in the once-bloated real estate sector — which directly and indirectly accounts for about a third of China’s gross domestic product. Economic activities.
These measures, known as China’s “three red lines” policy, require developers to limit their debt in relation to the company’s cash flow, assets and capital levels. Real estate giants Evergrande and Country Garden have emerged as two of the most high-profile victims among mainland property developers.
“At this point, people have to get used to the idea that it will likely take a much longer time to liquidate all the stocks. At the same time, one has to find new growth points for the economy to move forward, rather than just relying on… We focus only on the real estate sector and real estate investment for economic growth.”
Many market experts said I did not expect the property correction to last so long.
One has to find new growth points for the economy to move forward, rather than relying solely on the real estate sector and real estate investment for economic growth.
Hao Hong
Chief Economist, GROW Investment Group
He added that in previous economic downturns, the real estate sector would respond quickly to stimulus and rebound two or three quarters after finding the bottom.
“This time, it seems to us that the real estate sector has reached its peak and the long cycle is on the way down. As a result, since the market is not ready for a long-term correction – they are more accustomed to a quick recovery, according to previous experience – the market “I was surprised.”
“As a result, confidence and market response have been damaged by this lack of preparedness.”
Despite a series of support measures, the ongoing real estate crisis has weighed on consumer confidence and weighed on the broader economy.
This has led to calls for more aggressive stimulus amid fears of a worsening slowdown in the world’s second-largest economy.
In December, China’s leaders at the Central Economic Work Conference pledged to dispel risks associated with the real estate sector, domestic debt, and small and medium-sized financial institutions, while signaling a strategy to build affordable housing.
At the same meeting, the leaders also stressed that focusing on high-quality development is key. They developed a nine-point plan that includes technological innovation in the industrial system, boosting domestic consumption, expanding high-level foreign investment, and revitalizing agriculture to enhance food security.
China’s central bank provided 350 billion yuan (49 billion US dollars) In loans to policy banks through supplementary lending facilities pledged in December, according to a statement issued by the People’s Bank of China on Tuesday.
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 may support infrastructure construction and the struggling housing sector to boost growth.