China's real estate sector is experiencing a prolonged downturn, with population decline exacerbating the situation - report
Kyiv • UNN
The Chinese real estate market is experiencing a deep crisis, exacerbated by population decline and slowing urbanization. According to Goldman Sachs, demand for new housing in China's urban areas will fall to a quarter of 2017 peak levels.
China's real estate sector has been in a deep crisis for several years. Now, the shrinking population has become another blow to the stagnant housing market. This was reported by CNBC, writes UNN.
Details
Goldman Sachs estimates that demand for new housing in Chinese cities will remain low at less than 5 million units per year in the coming years — a quarter of the peak of 20 million units in 2017.
"Population decline and slowing urbanization suggest a decline in demographic housing demand" in the coming years, Goldman Sachs said in an analytical note released on Monday.
The country's population is expected to decrease from 1.41 billion to less than 1.39 billion by 2035, according to the latest World Bank data, notes Tianchen Xu, senior economist at the Economist Intelligence Unit. The main reasons are a decrease in the number of newborns and an increase in mortality among the elderly.
China's population has been declining for the third consecutive year. According to the latest government data for 2024, it decreased by 1.39 million compared to the previous year due to a decline in birth rates.
The population decline, according to Goldman Sachs, will lead to a decrease in housing demand of 0.5 million units annually in the 2020s and 1.4 million annually in the 2030s. This sharply contrasts with the positive contribution of 1.5 million units in the 2010s, when the population was steadily growing.
The birth rate continues to decline, even after Beijing abolished the one-child policy in 2016. Despite attempts by the authorities to stimulate birth rates with cash payments, young people refrain from starting families due to unstable incomes, an uncertain future in the labor market, and a weak social security system.
Deeper crisis
These demographic changes are putting further pressure on the real estate market, which has been unable to recover from a sharp downturn since late 2020. Despite a series of measures by central and local authorities since last September, the situation has not improved.
New home prices in May fell at their fastest pace in seven months, according to Macquarie's chief China economist Larry Hu, continuing a two-year stagnation despite government efforts to stem the decline.
New home sales in 30 major cities in the first half of June fell by 11% year-on-year, worse than the 3% drop in May, Hu notes.
Goldman Sachs predicts that owners of investment properties will be "net sellers" in the near future, transferring housing to owners who buy for living, expecting further price reductions.