Huai’an, China – A recent report from the International Monetary Fund (IMF) suggests that the demand for new housing in China is expected to decrease significantly in the coming years. According to the report, the IMF anticipates a decrease of 35% to 55% in fundamental demand for new housing due to various factors, including a decline in new urban households and a large inventory of unfinished or vacant properties.
The slowdown in demand for new housing is expected to pose challenges in absorbing excess inventory, potentially prolonging the adjustment into the medium term and weighing on growth. China’s real estate sector and related industries have been pivotal in contributing to about a quarter of the country’s gross domestic product. The recent property market slump follows Beijing’s crackdown in 2020 on developers’ high reliance on debt for growth.
However, China’s representative to the IMF, Zhengxin Zhang, believes that the IMF’s prediction for a substantial drop in new housing demand may overestimate the market downturn. Zhang asserted that China’s housing demand would remain significant and that policy support would gradually come into effect.
The IMF’s report also highlighted the rapid growth of China’s real estate sector over the last few decades, prompting authorities to caution against betting on a price surge and emphasizing that “houses are for living in, not for speculation.” The report emphasized the need for a correction in the property market, following government efforts to contain leverage in 2020-2021.
In recent years, highly indebted developers such as Evergrande and Country Garden have defaulted on U.S. dollar-denominated debt held by overseas investors, signaling potential financial turmoil in the real estate sector. Despite efforts by Chinese authorities to ease financing restrictions for developers and new homebuyers, the broader decline in the real estate sector has not been significantly stalled.
The IMF also noted that China’s economy grew by 5.2% in 2023, slightly lower than the IMF’s earlier prediction of 5.4%. The IMF predicts that China’s growth will further slow to 4.6% in the coming year. The report also emphasized the potential impact of moving supply chain production on China’s GDP growth, highlighting the interconnectedness of the global economy.