Property Investment in China Declines by Nearly 8% in First Half of the Year

The property investment in China has declined by almost 8% in the first half of this year, according to official data released on Monday. This drop indicates a worsening situation for a sector that contributes up to a quarter of the world’s second-largest economy.

The National Bureau of Statistics stated that the property sector is gradually stabilizing as the broader economy recovers. It is transitioning from high-speed development to more stable development in the medium to long term.

China’s property sector has been struggling to recover from a credit crisis that started due to the government’s crackdown on debt levels in August 2020. The excessive growth in the sector has resulted in the construction of ghost towns, where supply surpasses demand. Developers have been capitalizing on the desire for home ownership and property investment.

The investment drop of 7.9% from January to June is steeper compared to the 7.2% drop reported from January to May. Last month, China’s second-largest developer, China Vanke, acknowledged that the sector is under pressure in the short term and that the situation is worse than expected.

According to Dan Wang, the chief economist at Hang Seng Bank (China), the housing markets and consumption have posed significant challenges this year, affecting the overall rebound in broader economic growth. China’s second-quarter growth came in at 6.3% year-on-year and 0.8% quarter-on-quarter, which disappointed market expectations once again.

Wang added that despite the challenges, achieving 5% annual growth for the whole year is still possible without major obstacles. However, she believes that a larger fiscal and monetary stimulus is justified for the short term.

Fixed Asset Investment and Consumption Likely to Contribute to Annual Growth

Wang stated that if the decline in housing investment stabilizes at current levels, fixed asset investment would contribute around 1% to 1.5% to annual overall growth. She also anticipated a “natural rebound in consumption,” which could contribute about 2% to 2.5% to growth.

Wang believes that the overall economic picture is relatively positive, making it achievable to meet the annual growth target. As a result, there may not be much incentive for the central government to extend the stimulus.

Targeted Support and Housing Market Challenges

Recent data also indicated that new housing starts, in terms of area, decreased by 24.3% in the first half of the year compared to the previous year, while completed housing stock rose by almost 19%.

The housing sector has been severely impacted by a persistent credit crisis over the past two years, leading to numerous incomplete housing projects as developers face financial constraints. This situation has resulted in some buyers ceasing mortgage payments.

The broader economic slowdown has also caused individuals to save capital that could have been used for housing purchases and investment.

Last Monday, the People’s Bank of China and National Financial Regulatory Administration announced loan relief measures for certain developers, emphasizing their focus on ensuring the timely delivery of homes under construction. This indicates the possibility of more targeted support in the future.

Goldman Sachs economists commented that to counteract the ongoing challenges in property and confidence deficit, they expect more easing measures in the coming months, with a focus on fiscal, housing, and consumption support. However, they anticipate the magnitude of stimulus to be smaller than in previous easing cycles.

Market observers are eagerly awaiting the Politburo’s meeting later this month, as it traditionally reviews the country’s year-to-date economic performance. This meeting is expected to provide further guidance on policy stimulus. China’s leaders have recently indicated that their policy support will be judicious and targeted.