China’s property sector is facing a long and challenging road to recovery, according to Hao Hong, the chief economist at Grow Investment. He believes that fixing the sector could take up to a decade due to the overbuilding of housing in China.
One of the main factors contributing to the current woes of the Chinese property market is faltering consumer confidence in real estate companies such as Evergrande and Country Garden, both of which are facing significant debt problems.
Hong also points out that China’s rapid urbanization drive, which has been a key driver of the property market in the past decade, is coming to a halt. This further compounds the challenges faced by the sector.
The situation has been exacerbated by Evergrande’s recent default and its announcement of a delay in debt restructuring. Country Garden is also teetering on default. The sheer scale of the problem is evident in the fact that 18 trillion yuan ($2.46 trillion) worth of Chinese property was sold just two years ago. Hong notes that managing 10 trillion yuan this year, or five to six trillion yuan in future sales, would be considered “lucky.”
The decline in the property market is reflected in the August new home prices, which dipped 0.3% month-on-month and 0.1% compared to the previous year. This extended the ongoing slump in the real estate sector.
Interestingly, not everyone sees the situation as entirely negative. A former Chinese official recently warned that China’s population of 1.4 billion would not be able to fill the unoccupied apartments across the country. This oversupply of real estate poses a significant challenge.
While the current state of China’s property market may be concerning, Hong believes that it could ultimately lead to a more balanced and sustainable economy. He suggests that once expectations are reset and the economy diversifies away from heavy reliance on the property sector, China may experience a healthier and more robust economic growth.
In conclusion, the challenges faced by China’s property sector are considerable, and fixing the issues may take up to a decade. The overbuilding of housing, faltering consumer confidence, and the end of China’s urbanization drive all contribute to the current woes. However, there is hope that a more balanced and sustainable Chinese economy can emerge from this difficult period.