Chinese Property Sector’s Go-Go Days Aren’t Coming Back
Housing market will probably stabilize later this year, but a big new boom after this bust looks unlikely
By Jacky Wong
New residential developments in Xining, China, last year./ PHOTO: QILAI SHEN/BLOOMBERG NEWSIt has long been a reliable bet for investors that whenever China’s housing market slows down, Beijing eventually comes riding to the rescue—and usually overdoes it.
This time things will be different.
The government will still introduce policies to ease the pain from the current downturn.
But the sector’s go-go days are over: likely for good.
More local governments in China are rolling out policies to revive the sluggish housing market, including easing purchase restrictions and cutting down-payment ratios.
More monetary easing is likely on the way too.
Fundraising for developers has become easier, but mostly for the large state-owned variety—many private-sector developers are still struggling.
But so far the housing market remains in the doldrums.
Housing sales for the top 100 developers fell 53% year on year in March, according to China Real Estate Information Corp.
Covid-19 lockdowns in many cities including Shanghai are adding to the market’s woes.
Policy easing will probably help some buyers, but restoring the market’s confidence overall will be trickier.
The liquidity crisis at developers such as Evergrande means they are scrambling for cash to build apartments they have already sold.
Developers that are currently undergoing debt restructurings accounted for around a fifth of national housing sales in 2020, according to Citi.
And it seems unlikely Beijing will relax its squeeze on such deadbeats.
That is probably why shares of state-owned developers have done well recently— China Resources Land shares, for example, are hovering around historic highs.
The housing market will probably stabilize later this year if Beijing keeps stepping up policy easing, assuming it brings Covid-19 under control again.
But the reckless growth of the past decade is likely over for good.
Chinese developers have relied on presales of unbuilt apartments to expand for years.
While the proceeds are supposed to be used for completing properties, a large portion went into buying more land and starting more projects.
Residential housing starts have been more than twice the amount of completions in the past few years.
The gap finally started to shrink last year as developers started fewer new projects.
But tighter controls on the use of presales funding will likely result in structurally slower property sector growth.
And after years of overbuilding, the country isn’t short of homes anyway.
Assuming living space per capita reaches 50 square meters—a relatively high level even compared with developed countries—annual construction volume should peak around this year, according to Gavekal Dragonomics.
An aging population and slowing urbanization should also dampen future housing demand.
The Chinese housing market has had two spectacular decades.
There is always a chance that a truly disastrous Covid-19 outbreak this year forces a more abrupt about-face on funding restrictions by Beijing.
A roaring 2020s, however, is looking more and more unlikely.
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