Beijing: Housing prices are falling in China, and its real estate market is facing a slowdown in investments, deepening concerns.
According to Anadolu Agency, new and previously owned housing prices fell in many of the 70 large and medium-sized cities in the country, particularly in Beijing, Shanghai, Guangzhou, and Shenzhen by 0.8%. In some 31 large second-tier cities, prices decreased by 2%, and in some 35 medium-sized cities, the drop was 3.4%, as reported by the country's National Bureau of Statistics.
Shanghai emerged as an exception among first-tier cities, with housing prices rising 5.7% on an annual basis, while previously owned housing prices fell 4.4% year-on-year in first-tier cities, 5.2% in second-tier, and 5.7% in third-tier cities. Despite the central government lowering credit interest rates and minimum down payments to stimulate the housing market, and local governments implementing policy measures to encourage home sales, these efforts have yet to influence the overall trend.
The slowdown in China's real estate sector is also affecting the cement and steel industries. The housing market holds critical significance in China, influencing the country's economic model, social structure, and political stability. The housing market also plays a key role in the global economy, driving growth in various sectors, including construction, real estate investments, and mortgage loans. Housing loans are one of the largest portfolio items in the banking system, and any potential bubble or crash in the housing market can cause significant fluctuations in the financial sector.
Said Kaymaz, an Asian markets analyst, told Anadolu that the modern Chinese housing market was formed in the 1990s and expanded rapidly alongside economic growth. He explained that the Chinese government initiated massive fiscal and monetary expansion in 2008 after the global financial crisis, influencing the current administration's perspective on the housing market.
Kaymaz noted that reckless borrowing and leverage by housing construction firms during market vitality contributed to the decline. He highlighted Chinese President Xi Jinping's 2016 measures against market speculation as a turning point, leading to a cooling of the market and issues such as the Evergrande crisis. He added that these measures restricted new projects and financing initiatives for real estate companies.
Kaymaz stated that the housing sector's role in China's economy was substantial, contributing nearly 30% of the GDP in 2015. However, the government shifted resources to sectors like electric vehicles, renewable energy, and semiconductors, with financial support withheld from struggling real estate companies unless they posed a systemic risk. The Evergrande crisis and strict measures during the pandemic further accelerated the decline in housing prices.
Despite policymakers viewing the real estate sector as inefficient, Kaymaz argued for its systemic importance. He noted that the Communist Party's leadership is attempting to stabilize housing prices, but these measures have yet to yield results. The sector's share in the economy has decreased to around 15%, while high-value-added sectors have grown steadily.
Kaymaz emphasized that the current administration is reluctant to provide financial support to the sector, but some academics argue that stabilizing the housing market is crucial to stimulating domestic consumption, calling for stronger support for the housing market.