How China’s Real Estate Sector Is Adapting to a Slower Market

Signs of improvement after a dark year, but a golden age is over: Burnt by the housing crisis, some Chinese developers are beginning to see the light at the end of the tunnel in a market that will slow down for good.

China’s real estate sector has seen spectacular growth since its liberalization in 1998, in a country where buying a property is often a prerequisite for marriage and investment.

For two decades, developers have been able to develop at a rapid pace thanks to bank loans, but their degree of indebtedness has increased so much that the authorities have decided to put an end to this phenomenon starting from 2020.

Since then, their access to credit has shrunk considerably, while demand for real estate has fallen amid an economic slowdown and crisis of confidence.

Property developer Evergrande saw its “biggest contraction in history” last year, with sales down 24 percent, according to Chinese economic consultancy Gavekal Dragonomics.

Many potential buyers put off purchasing a property and construction sites were halted. Now, the Chinese housing market is showing timid signs of recovery, but housing prices are still at a low level.

But it is not an expected rebound, Shehzad Qazi, an analyst at research firm China Beige Book, told AFP. it will happen,” predicts John Lam, who monitors the Chinese housing market for UBS. He argues that “the Chinese population has started to decline in 2022”, a trend that will continue and will inevitably weigh on property demand.

So the real estate sector will see “periodic rebounds”, but the era of rapid growth is “over”. Together with the construction sector, it accounts for about a quarter of China’s GDP and an important source of income for local governments, whose finances are stretched thin after three years of huge spending to combat Covid-19.

Beijing appears to have taken a more conciliatory approach since November, with targeted support measures for the most financially sound developers, with mixed results.

In March, the number of new home starts contracted by 29% year-on-year (after a 9.4% drop in January-February), according to the latest NBS figures.

“China’s real estate is still not out of the doldrums, and there can be no question of a market return to the levels of the past years,” warns economist Larry Hu of investment bank Macquarie. “Developers remain cautious and prioritize the completion of existing projects over the launch of new ones.”