The current pace of correction in China’s real estate sector means that the correction would continue for a long time. REUTERS/Aly Song
The correction in China’s real estate sector could last more than a decade, according to an economist.
This is due to the large stocks that are still under construction, says Hao Hong from GROW Investment.
Home sales in China fell 16.5 percent in 2023 compared to the previous year.
This is a machine translation of an article from our US colleagues at Business Insider. It was automatically translated and checked by an editor.
China could continue to feel the impact of its housing crisis for more than a decade as it will take a long time to clear all available and emerging inventory in China’s housing market, an economist has said.
In an interview with CNBC On Thursday, GROW Investment Group chief economist Hao Hong predicted a prolonged correction in China’s real estate sector. This is different from previous economic downturns in China, Hong said, as China’s real estate sector has historically responded to stimulus measures in just two to three quarters.
However, this time the recovery will look different as China’s real estate market is in crisis. Major property developers are buckling under the weight of their debts, and demand and investment in the country’s housing market has collapsed. Residential property sales in China fell 16.5 percent year-on-year in 2023, despite stimulus measures introduced in the last quarter.
At the current sales pace, it could take about two years to clear all outstanding inventory in China’s real estate market, Hong estimates. Considering the six million square meters of real estate still under construction in China, it could take even longer. “At this rate, it will likely take more than 10 years to complete all of the housing under construction. So all in all, we are talking about several years for a correction,” said Hong.
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The collapse of the Chinese real estate market could also cause difficulties for the Chinese economy. The real estate market is an important pillar of the country. According to an analysis by Bloomberg Economics, China’s GDP will shrink by four percentage points by 2026 because the real estate market could collapse. which could cost five million jobs. Veteran investor Kyle Bass estimates that the country’s banking system could suffer a $4 trillion (€3.66 trillion) loss while the real estate sector undergoes a full correction.
Read the original article in English here.