What's happened
China's housing market is experiencing significant price declines, with new home prices in 70 cities dropping 4.1% year-on-year in May. Goldman Sachs predicts a further 10% decline before 2027, while Morgan Stanley sees potential for recovery in Hong Kong's market. Policymakers remain cautious in their response to the crisis.
What's behind the headline?
Current Trends
- Price Declines: New home prices in major cities fell 4.1% in May, indicating ongoing weakness in the market.
- Policy Response: Despite calls for stronger support, the Chinese government has been slow to implement significant measures, contrasting with responses in other countries facing housing downturns.
Future Outlook
- Goldman Sachs Prediction: Analysts expect a total price correction of 30% over six years, with a potential bottoming out by 2027.
- Morgan Stanley's Optimism: In contrast, Morgan Stanley forecasts a recovery in Hong Kong's market, suggesting that the worst may be over.
Implications
- Economic Impact: The housing crisis is a critical economic event for China, affecting consumer confidence and overall economic stability. Insufficient policy responses could lead to entrenched demand weakness and prolonged deflation.
What the papers say
According to Huileng Tan from Business Insider UK, Goldman Sachs highlights that China's housing market correction is one of the decade's most significant economic events, predicting a total price decline of 30% over six years. Meanwhile, the South China Morning Post reports that Morgan Stanley sees signs of recovery in Hong Kong, with a forecast of price increases following a period of volatility. This contrast in outlooks underscores the uncertainty in the region's real estate markets, with some analysts advocating for more aggressive policy measures to stabilize the housing sector.
How we got here
The downturn in China's property market began in 2021 due to stricter lending curbs aimed at reducing financial risks. This has led to a prolonged slump, compounded by pandemic restrictions and high youth unemployment. Recent government measures have aimed to stabilize the market but have shown limited effectiveness.
Go deeper
- What are the main factors affecting China's housing market?
- How does the situation in Hong Kong differ from mainland China?
- What measures are being considered to stabilize the housing market?
More on these topics
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China, officially the People's Republic of China, is a country in East Asia. It is the world's most populous country, with a population of around 1.4 billion in 2019.