China’s real estate sector is experiencing a divergence, and while additional stimulus is expected, a quick recovery is unlikely, according to a former advisor to the People’s Bank of China.
“The property market in China is currently bifurcated. It’s moving in two different directions,” said Li Daokui, who is now a professor of economics at Tsinghua University.
The Chinese property market has been impacted by declining consumer confidence in real estate firms due to the debt troubles faced by property giants like Evergrande and Country Garden. Country Garden narrowly avoided default, while Evergrande filed for bankruptcy protection.
In July, China’s house prices declined by 0.1% year-on-year, following a brief recovery in May and remaining steady in June.
When asked if bolder policy responses are needed from Beijing, Li said there are many meetings and deliberations happening behind the scenes.
According to Li, market participants don’t see sufficient signs of these policies yet, but he predicts that many policies will be implemented in the next two months.
These policies are likely to focus on stabilizing the finances of the largest property developers and dispelling any potential financial panic.
A tale of two property markets
Li pointed out that the slowdown in China’s property market is not uniform.
“In the largest cities, like Beijing and Shanghai, good properties, particularly large apartments, are being sold at a much faster pace than before.”
A man walks past a housing complex by Chinese property developer Evergrande in Guangzhou, China’s southern Guangdong province on September 17, 2021.
Noel Celis | Afp | Getty Images
Meanwhile, sales are declining in the third- and fourth-tier cities, according to Li.
“The situation here is that there is still a lot of liquidity among high-income individuals. However, people with moderate salaries are more hesitant to buy,” he explained.
Therefore, Li expects property sales to improve in the next six to twelve months in third- and fourth-tier cities, as well as for smaller apartments. He believes there will be several months of recovery for the property market.
Beijing has recently implemented measures to support China’s struggling housing market, including reducing loan interest rates and easing purchase and sale restrictions.
“So any possibility of financial panic should be and will be dispelled.”
Li Daokui
Professor of Economics, Tsinghua University
On Wednesday, China’s state-owned Securities Times published a commentary calling for the lifting of “policies restricting property purchases in cities other than the hottest top-tier cities” as soon as possible.
The commentary stated that with the significant changes in the demand-supply relationship in the property market, it is no longer appropriate to retain restrictive policies aimed at curbing speculation. It emphasized the urgent need to increase policy support to boost sales and release suppressed demand in the housing market.
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