In a report released by the International Monetary Fund (IMF), it is predicted that the demand for new housing in China will drop by around 50% in the next decade. This is expected to pose a challenge for Beijing in boosting the country’s overall economic growth. According to the report, the fundamental demand for new housing in China is projected to decrease by 35% to 55% due to a decline in new urban households and a large inventory of unfinished or vacant properties. The slowing demand for new housing will make it harder to absorb excess inventory, which will in turn impact growth in the medium term. China’s real estate sector and related industries have historically made up a significant portion of the country’s GDP, with the recent property market slowdown following Beijing’s crackdown on developers’ heavy reliance on debt for growth. As a result, the sector is predicted to see a rapid decline in the years to come.
In response to the IMF’s prediction, China’s representative to the IMF, Zhengxin Zhang, expressed disagreement, stating that the projected decline in housing demand is unlikely to be as significant as suggested. Zhang emphasized that China’s housing demand will remain substantial and that policy support will gradually come into play. The IMF report compared housing demand and new starts from the 2012 to 2021 period with estimates for 2024 to 2033. The report also highlighted the rapid growth of China’s real estate sector in recent decades, with authorities cautioning against speculation and emphasizing the practical use of homes rather than speculative investment. The IMF acknowledged the necessity of the correction in the property market following government efforts to contain leverage in 2020-21 and stressed the need for this trend to continue. The report further pointed out the default of highly indebted developers, such as Evergrande and Country Garden, on U.S. dollar-denominated debt, leading to concerns amid efforts to ease financing restrictions for developers and new homebuyers. Despite these measures, confidence in the real estate market has not significantly rebounded, with consumer confidence dropping and Chinese stocks declining.
The IMF’s report also addressed the fiscal policy stance in China, noting the authorities’ view of the fiscal stance in 2023 as “proactive” and their intention to maintain such a stance in the year ahead. Additionally, the People’s Bank of China announced a 50 basis points cut in the reserve requirement ratio, marking the largest such cut since 2021. While the IMF sees this as a step in the right direction, it believes more monetary policy easing is needed, along with monetary policy reforms, to address the predicted slower GDP growth. According to the IMF, China’s economy grew by 5.2% in 2023, falling short of the 5.4% predicted by the IMF due to weaker than expected consumption in the fourth quarter. The IMF is forecasting a further slowdown in China’s growth to 4.6% this year. The report highlighted the potential impact of relocating supply chain production, either back to the home country or to allied countries, on GDP growth in China and globally. Looking ahead, the IMF expects inflation to increase to 1.3% this year, while pointing out that falling energy and food prices were the main reasons for the drag on prices in 2023. Consequently, the real estate slump in China is seen to have weighed on prices, in contrast to how housing has boosted inflation in other countries.
