BEIJING, CHINA – A new report from the International Monetary Fund predicts a significant drop in demand for new housing in China over the next decade. According to the report, this decline in demand could have substantial consequences for the country’s overall economic growth, posing a challenge for policymakers in Beijing.
The IMF’s report, completed in December and released on Friday, forecasts a reduction of about 35% to 55% in the fundamental demand for new housing in China. This drop is attributed to a decrease in new urban households and a surplus of unfinished or vacant properties. The report also suggests that the slowdown in demand for new housing could prolong the adjustment process and weigh on the country’s economic growth in the medium term.
China’s real estate sector and related industries have accounted for approximately a quarter of the country’s gross domestic product. The recent downturn in the property market follows Beijing’s crackdown on developers’ high reliance on debt for growth in 2020.
Zhengxin Zhang, China’s representative to the IMF, disputed the IMF’s prediction of a 50% drop in new housing demand, stating that the estimate overestimates the possible market downturn. Zhang emphasized that China’s housing demand is expected to remain substantial, and policy support is likely to gradually come into effect.
The IMF report also highlighted the rapid growth of China’s real estate sector in past decades and warned against speculation in the property market. The report emphasized the need for continued efforts to contain leverage in the real estate sector and the importance of government intervention to complete unfinished housing projects.
In addition to the challenges in the housing market, China has also seen highly indebted developers defaulting on U.S. dollar-denominated debt held by overseas investors. This has contributed to a broader decline in the real estate sector, as efforts to ease financing restrictions have not yet significantly bolstered market confidence.
Looking ahead, the IMF expects inflation to increase this year, with a projected slowdown in GDP growth. The report also addresses the impact of the real estate market slump on prices and consumption in China. These developments underscore the complexities and challenges in China’s economic landscape and point to the need for sustained policy measures to address the ongoing issues in the housing market.