China real estate will be gloomy for many years to come

“We see persistent weaknesses in the real estate sector, primarily related to lower-tier cities and private developer financing, and we believe there is no quick fix to the situation,” Goldman Sachs economists said in a note over the weekend.

In addition, economists say the real estate market is expected to record an “L-shaped recovery” – defined as a sharp decline followed by a slow recovery.

Chinese real estate will be gloomy for many years to come. Image 1 — Photo: The New York Times.

“Based on our estimates, the real estate weakness is likely to be a multi-year drag on growth in China, but it could be less painful in 2023 than in 2022,” they said.

Data from May showed China's property sector is still struggling to turn things around, despite signs of recovery earlier this year.

Market observers predict China will likely support the sector once considered the “backbone” of the economy through fiscal stimulus policies, expected to be rolled out as the economy struggles to regain momentum after reopening from Covid-19.

Hong Kong-listed Chinese real estate stocks jumped on Tuesday (June 13) after the People's Bank of China cut the seven-day reverse repo rate by 10 basis points from 2% to 1.9% - the first cut since August 2022.

On June 13, shares of real estate developer Logan Group rose as much as 4.5% and Country Garden rose 4% on hopes of more stimulus and policy easing in the coming period.

Goldman Sachs economists also noted that there are expectations that the Chinese government will roll out more housing stimulus packages to support the sector.

The government invested about $144 billion in the first seven months of 2018 to compensate residents and owners of demolished homes to boost home sales and prices in smaller cities, Reuters reported.

Similar to Goldman Sachs' assessment, in its mid-year outlook report, Morgan Stanley bank warned that further weakness in the real estate sector could pose more obstacles to China's growth.

“If the housing challenges deepen and cause risk aversion in the financial system and affect consumer confidence, this will deepen China’s recession,” wrote Chetan Ahya, chief economist at Morgan Stanley.

If monetary easing measures fail to support the ailing property sector, it will also raise concerns about spillover effects in the rest of the Asia- Pacific region, the bank's economists said.

Khanh Vy (According to CNBC)

Source