Investment Institute
Macroeconomic Research

Brick by Brick: Unravelling China's property Puzzle

  • 02 May 2024 (10 min read)
KEY POINTS
China's property market has been in a persistent downturn since early 2022, deeper and more prolonged than previous corrections. With weakening fundamental drivers and subdued investment appetite, the long-standing housing market boom appears unlikely to return
The downturn has unique characteristics, distinct from crises in Japan in the 1990s or the US in 2007-2008. We estimate the theoretical market equilibrium at around 50% of the peak, but short-term outcomes depend heavily on uncertain future investment behaviour and potential policy interventions
Even a soft landing in the property market would pose headwinds for broader economic activity. Strategies to boost other sectors, such as infrastructure projects and export growth, may have limited effectiveness compared to previous efforts

China’s real estate sector has become a major pillar of its economy over the past decades, accounting for 25%-30% of the country’s GDP. As well as providing homes for China’s considerable population, property has increasingly been used as a prime store of saving – price rises in the past have made it a good investment vehicle and a perceived safe store of value. It has also been a hive of activity, with a vast building and property development sector having grown up around it. Given its significant contribution and influence on the overall economy, the property sector has been used by the authorities as a transmission mechanism to stimulate or deter broader economic activities.

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