China’s property sector: This time is different
- China’s property market is now enduring its longest and most painful adjustment despite brief relief after the initial wave of the pandemic.
- Yet, not only has Beijing so far refused to come to the market’s rescue, much of the downturn has in fact been a result of its restrictive policies.
- We think these policies – to address structural imbalances of the real estate sector – are fundamentally different from past attempts to cool a cyclically overheating market. With slowing population growth and changing national development strategies, Beijing is redefining the role of real estate under the banner of a ‘house is for living, not speculation’
- The challenge of achieving this objective lies in fundamentally reallocating resources away from a gigantic sector which is deep-rooted in China’s social, economic, and financial ecosystem. A disorderly correction could have catastrophic consequences.
- Hence, a pragmatic approach is needed to manage systemic risks. As Beijing’s priority now shifts to stabilising growth, policies are fine-tuned to put a floor under the market. A gradual bottoming out of activity is expected as credit conditions improve, but not enough to fully remove stress on the weakest developers. The latter will likely continue to bear the brunt of the adjustment pains.