News — ChangeLab

China's economic growth could stall by 3% due to the real estate market situation

Although China's real estate market, which accounts for about a quarter of the Chinese economy, holds out hope of stabilizing, the effects of its decline in 2021 are still being felt and are overshadowing China's post-Covid-19 recovery. This situation suggests that China's economic growth will not exceed 3% over the next two years.

Economists estimate that the decline in real estate investment over the next two years could be about 15%, which in turn would lead to a devastating blow to the Chinese economy. Accordingly, even assuming that the Chinese government can use all the incentives in the form of lower interest rates and increased budget deficits to prevent such a crisis, the decline in real estate prices would still lead to a slowdown in GDP growth to 2.9% in 2023 and 2.8% in 2024, respectively.

As for real estate prices themselves, in January-February this year the average price per square meter in China was about 10,558 yuan (1,543), which is 6% below the peak fall reached during the same period in 2022. Against this backdrop, experts in China also report a 3.5% increase in household consumption. According to assumptions, the figures should have been higher, as observed in the West after the abolition of covidual restrictions, but these expectations have never materialized.

Nevertheless, our team believes that if the PRC government takes all necessary measures to support the industry, only then will the decline in real estate prices in China not be a prerequisite for a complete collapse of the sector. One option is to introduce a grace period for some home buyers and allocate budget funds for the completion of frozen projects. The Central Bank of China, in turn, can help strengthen enforcement of the rights of property buyers, and commercial banks to increase the volume of mortgage loans.