China’s real estate woes are far from over.
A years-long slump for the country’s real estate sector could likely worsen, fueled by a slowdown in construction, according to a Capital Economics study reported by Business Insider.
“The drag from the unavoidable structural decline in China’s property sector has only just begun,” researchers wrote.
Beijing has sought to prop up the sector with investment and pressure on developers, but it’s a strategy that won’t work forever. The government has been following its usual playbook for responding to real estate slowdowns, but with less success this go around.
In January, Evergrande, the country’s largest developer, was ordered to liquidate by a Hong Kong judge. Country Garden, one of China’s biggest homebuilders, faces a ballooning debt bill of about $187 billion.
Property sales and project starts have plummeted.
“A variety of approaches suggest that a sustainable level of residential construction activity is about half of what’s underway today, given China’s demographics and its need to replace aging housing stock,” researchers wrote. Floor area under construction has fallen just 3 percent from its peak in 2022, according to the outlet.
Policy experts are scrambling to find solutions. Last month, the Wall Street Journal reported that government officials are pivoting to socialist policies to try to save the sector. On Thursday, China’s former central bank governor Yi Gang proposed an insurance system for real estate developers to access pre-sales funds.
But Capital Economics researchers warn that it’s only going to get worse. “Property construction still has a long way to fall,” they wrote.
–– Kate Hinsche