HONG KONG - The slump in China’s housing construction will continue in 2024, dragging down economic growth and suggesting that government efforts to stabilise the sector have not been enough to reverse the downturn.
That is the consensus from 10 investment banks and securities brokerages, including Goldman Sachs, Morgan Stanley and UBS.
If they are right, that leaves China on track to post three straight years of contractions in property construction, a record streak. The country’s main measure of real estate investment fell 8 per cent on year in the first 11 months of 2023. For all of last year, the measure dropped 8.4 per cent.
The outlook signals the downturn in the property market is far from over, despite the government’s rollout of measures mostly aimed at stoking demand for homes. The prolonged slump means the sector’s role as a driver of demand for goods and services has shrunk. Real estate-related demand accounts for about 20 per cent of gross domestic product (GDP) now, down from 24 per cent in 2018, Bloomberg Economics estimates.
Goldman economists have one of the most bearish forecasts, expecting a “double-digit” contraction in real estate fixed-asset investment in 2024. The ongoing property slump will reduce real GDP growth by one percentage point, they added.
Other forecasts are less gloomy. Morgan Stanley sees the gauge dropping 7 per cent, while UBS expects a 5 per cent decline. Chinese economists are bearish, too, with China Merchants Bank International expecting real estate investment to fall 7 per cent.
According to Mr Ming Ming of Citic Securities and other economists, the key reason for pessimism is a sharp decline in newly started real estate projects in 2023. That suggests the area of completed projects has room to fall.
Another reason is the decline in real estate sales, which leaves developers with less incentive to start construction. Both Goldman and UBS see real estate sales dropping 5 per cent next year.
The property downturn has wider reaching effects. Given the large size of the sector, falling construction activity is a major cause of weak domestic demand, which in turn is one of the main reasons China has seen deflation this year.
Many economists still see Beijing setting an ambitious GDP growth target for 2024 of around 5 per cent, meaning that large fiscal stimulus would be required to offset the drag on growth from housing.
One analyst bucking the consensus for a deeper housing construction slump is Mr Logan Wright, director of China market research at Rhodium Group. He sees low single-digit growth in both real estate construction and sales next year.
There are already signs of a stronger outlook for consumption in improving government land sales, Mr Wright said. He also pointed to a pickup in the usage of equipment in China made by Japanese firm Komatsu. That is widely seen as one of the most reliable high-frequency construction measures.
“The worst of the industry’s correction is already behind us,” Mr Wright added.
Some economists argue that China’s government will inject further stimulus in an attempt to stabilise the market. Those measures could include further use of central bank or fiscal funds to directly buy up excess housing.
Chief China economist at Danske Bank, Mr Allan Von Mehren, said: “I expect housing stimulus to continue to be scaled up.
“My baseline scenario is that the housing crisis continues in the first half, but gradually improves in the second.” BLOOMBERG
