China’s housing market has gone from growth driver to drag, pulling the economy down despite the country’s post-COVID-19 lockdown reopening. Rebecca Feng and Cao Li report for The Wall Street Journal:
China’s housing market flipped from being a growth driver to an economic drag in 2022, with sales slumping, prices falling and widespread job losses. The prognosis for this year isn’t much better, compounding Beijing’s efforts to get its economy back on firmer footing.
Sales of new residential properties in the country tumbled 28% last year to the equivalent of $1.7 trillion in value terms, a five-year low. By floor area, they dropped to their lowest level in nearly a decade, after a wave of real-estate developer debt defaults, delays in construction of unfinished apartments and Covid-19 lockdowns dampened consumer confidence.
Land sales by area declined 53% in 2022 to a level below that of 1999, the year China’s National Bureau of Statistics began releasing the data. The drop indicates the future supply of new homes will be much less than during the property market’s recent boom years.
Together, the data show without doubt that China’s giant property bubble has burst, and the downturn could continue for a while before the market reaches a tipping point. Home prices have also been declining sequentially on average across 70 major cities that the government tracks.
“The road to deleverage the property sector is destined to be long and painful,” said Michael Pettis, a professor of finance at Peking University’s Guanghua School of Management. “We still have a long way to go,” he added.
Chinese authorities have over the past decade tried multiple times to bring down what they have long seen as excessive borrowing by property developers and speculative activity in the country’s housing market. Each time they tried to slow the sector down, they ultimately backed away because it caused too much pain on the economy, Mr. Pettis said.
Real estate and related industries such as construction and property services in recent years have contributed around a quarter of China’s gross domestic product, according to widely cited estimates from a research paper by economists Kenneth Rogoff of Harvard University and Yuanchen Yang of the International Monetary Fund.
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