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Chinese property developers, who suffered a massive downturn due to a housing crisis last year, are beginning to witness some positive signs. However, experts caution that the real estate sector is likely to experience a slowdown in the future.
In China, buying a house is a common tradition before marriage and is also considered an investment, which led to a significant expansion in the real estate industry after regulations were eased in 1998. Over the past two decades, developers were able to construct properties rapidly, aided by easy bank loans. However, their debts increased to such an extent that authorities have ceased providing access to cash since 2020.
As a result, credit availability severely reduced, and the economic downturn and loss of confidence led to a decline in demand for property. This situation was made worse by the near bankruptcy of the previous industry leader, Evergrande, and has now spread to other developers, who are consequently avoided by potential buyers who fear similar setbacks.
In China, it is customary for the majority of new properties to be paid for even before construction begins, which is considered a strong indicator of market demand. However, last year, the real estate market experienced its worst-ever decline, with sales decreasing by 24%. The Covid-19 pandemic exacerbated this situation by causing anxiety among potential buyers, leading many to postpone purchasing a property. Additionally, some homeowners have refused to pay their monthly instalments due to frustration with developers who have ceased construction work because of a lack of funds.
Following a challenging year, China’s real estate market has exhibited indications of stabilization since the beginning of 2023. The National Bureau of Statistics (NBS) recently released data indicating a significant increase in property prices in a comprehensive survey of major cities across China in March. Among the 70 cities featured on the official list, 64 of them saw a rise in property prices, a notable improvement compared to 55 cities in February and 36 cities in January.
Real estate and construction, which make up around a quarter of China’s GDP, are crucial pillars of the country’s economic growth, as well as major revenue sources for local governments who have been grappling with financial challenges due to significant spending to manage the Covid-19 pandemic over the last three years.
According to recent figures from the National Bureau of Statistics (NBS), the number of newly started construction projects in China dropped by 29 percent year-on-year in March. This is in addition to a 9.4 percent decrease in January-February, despite the comparably low base from 2022 when the country’s property market was in turmoil.
In conclusion, while there have been some positive signs of recovery in China's real estate market in the early months of 2023, experts predict that the industry is likely to experience a slowdown in the future. The near-collapse of industry leader Evergrande, coupled with a reduction in credit availability and a decline in demand due to the economic downturn, has led to a challenging environment for developers. However, real estate and construction remain crucial pillars of China's economy, and local governments are relying on them for revenue. As the country continues to grapple with the aftermath of the Covid-19 pandemic, it remains to be seen how the real estate sector will fare in the coming months and years.
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