The Chinese economy continued to face challenges as market indicators showed a downward trend despite efforts to revive the ailing property sector. The International Monetary Fund (IMF) recently predicted a slowdown in the Chinese economy for the upcoming years, with a forecasted growth rate of 4.6% this year, down from 5.2% in 2023. The IMF further projected a growth rate of 3.4% in 2028, primarily attributing the decline to a significant drop in housing starts due to a government crackdown on excessive borrowing since 2020.
According to the IMF report, housing starts have plummeted by more than 60% from pre-pandemic levels, a decline comparable to the largest housing busts witnessed in the last three decades globally. These findings are indicative of the current predicament faced by the Chinese property market. The negative sentiment was reflected in the stock market where Shanghai's benchmark composite index lost 1.5% and the Shenzhen market experienced a 3% decline, resulting in the worst week for Chinese stock markets in five years.
To address the challenges faced by the real estate industry, the Chinese government unleashed a series of measures aimed at increasing the supply of affordable housing and stimulating demand. This move coincides with the upcoming national congress in Beijing, where the ruling Communist Party seeks to demonstrate its leadership and commitment to resolving economic issues. The deteriorating situation in the sector was further exemplified by the Hong Kong court's recent order to liquidate China Evergrande, the world's most heavily indebted developer with over $300 billion in liabilities.
The Chinese property sector is a crucial contributor to the country's economic activity and its ongoing struggles have had a detrimental impact on economic growth. Both investors and consumers have experienced declining confidence as a result of the industry-wide meltdown. While the economy expanded by 5.2% last year, experts anticipate a further slowdown in the coming years.
The ripple effects of the sluggish property market have extended beyond growth concerns to local government revenue. Declining land sales revenues, which fell by 13.2% in 2023, have added to the burden of public debt carried by Chinese municipalities. Furthermore, the IMF report highlighted the presence of serious issues within the sector, including the insolvency of several developers who are evading bankruptcy by utilizing accounting rules to postpone losses on their loans. The report also anticipated a slowdown in the need for new housing as the population shrinks and urbanization rates decrease.
In response to these challenges, the Chinese government has expanded access to loans for developers to aid in their recovery from the ongoing downturn. Additionally, specific regions in the country have released 'white lists' outlining projects eligible for lending, a key strategy implemented by the government to revitalize the industry. The central bank and State Administration of Financial Supervision have also issued a list of 17 measures to support the rental housing market, which will take effect on Monday. These measures focus on financial services for leasing, promoting investment in rental housing, and improving the financial management of rental properties.
The government aims to prioritize key areas and address shortcomings, particularly in larger cities, to resolve housing issues faced by new citizens, young people, and other vulnerable groups. The objective is to support the construction, renovation, and operation of long-term rental housing while also rejuvenating existing housing stock, ultimately increasing the supply of affordable and commercial rental housing.
Over the past few decades, home ownership in China has significantly expanded due to housing reforms that granted workers ownership of homes previously assigned to them by state-owned companies and agencies. Currently, the home ownership rate in China stands at approximately 90%, surpassing rates found in many Western countries. Moreover, many urban families invest in multiple properties as a means of generating income. Enhancing the rental market would alleviate housing shortages for young individuals and other demographic groups who lack substantial resources to purchase their own apartments.
Various local governments have also implemented measures to support families with more than one child in their pursuit of obtaining mortgages for personal use. For instance, in Shanwei, families with two or more children benefit from loans that exceed the usual limit by 20%. Overall, these initiatives strive to create a favorable environment for families and bolster the real estate market.
The Ministry of Housing and Urban-Rural Development recently announced that the first batch of real estate projects qualifying for loans and equity financing in eight cities or provinces requires financing amounting to 3.5 trillion yuan ($496 billion). These endeavors demonstrate the Chinese government’s dedication to reviving the property sector and propelling economic growth.
Despite the challenges facing the Chinese property market and the projections of a slowdown in the economy, the government continues to implement a series of measures to stimulate demand and address the issues plaguing the industry. The success of these initiatives will play a crucial role in boosting investor and consumer confidence, promoting economic growth, and ensuring a stable and prosperous future for China's property sector.
