China’s property investment recorded a nearly 8% decline in the first half of the year, according to official data released on Monday. This is a significant drop for a sector that contributes up to a quarter of the world’s second-largest economy. The National Bureau of Statistics has stated that the sector is expected to stabilize as the broader economy recovers, transitioning from high-speed development to more stable growth in the medium to long term.
China’s property market has been struggling due to a credit crisis triggered by government measures to control debt levels in August 2020. Years of rapid growth have led to the construction of ghost towns, where supply exceeds demand, as developers seek to profit from the demand for housing and property investment.
The 7.9% decline in property investment from January to June was steeper than the 7.2% decline reported from January to May. China Vanke, the second-largest developer in China, recently stated that the sector is facing short-term pressure and the situation is worse than expected.
Dan Wang, chief economist at Hang Seng Bank (China), explained that the housing market and consumption have been major drags on economic growth this year, resulting in a lack of broader economic rebound. Despite second-quarter growth of 6.3%, which fell short of market expectations, Wang believes that achieving 5% annual growth is still feasible without significant problems.
To further support economic growth, Wang believes that a slight increase in fiscal and monetary stimulus is justified. She predicts that fixed asset investment will contribute about 1% to 1.5% of annual growth, while a natural rebound in consumption will contribute about 2% to 2.5%.
In terms of housing investment, if the decline does not worsen, it would likely account for about 1% to 1.5% of annual growth overall. Wang believes that the overall economic situation is positive, making it unnecessary for the central government to extend stimulus measures.
Recent data also revealed a 24.3% decrease in new housing starts in the first half of the year compared to the previous year, while completed housing stock rose by nearly 19%. The housing sector has been heavily affected by a credit crisis, resulting in incomplete housing projects and developers facing financial difficulties. The economic slowdown has also led to a decrease in capital allocated for housing purchases and investment.
In response to these challenges, the People’s Bank of China and National Financial Regulatory Administration have extended loan relief for some developers, emphasizing their commitment to ensuring the timely delivery of ongoing construction projects. This suggests that more targeted support may be provided in the future.
Goldman Sachs economists anticipate more easing measures focused on fiscal, housing, and consumption in the coming months to counteract the persistent growth headwinds in the property market. However, they expect the magnitude of the stimulus to be smaller compared to previous easing cycles.
Market observers are eagerly awaiting the Politburo’s meeting later this month, which traditionally reviews the country’s economic performance so far this year. This meeting is expected to provide further guidance on policy stimulus. Chinese leaders have indicated in recent weeks that they will exercise judicious and targeted policy support.
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