China’s Real Estate Sector: Managing the Medium-Term Slowdown
By Henry Hoyle and Sonali Jain-Chandra
February 2, 2024
Accelerated cleanup of distressed developers and other policies will help smooth the path to a smaller, more sustainable role in the economy
Real estate has long been important for China’s economy, driving its rapid growth in recent decades and accounting for as much as 20 percent of activity.
This reliance has, however, been accompanied by the buildup of significant risks.
Home prices became significantly stretched relative to household incomes in the decade before the pandemic, in part because consumers preferred to invest their considerable savings in real estate given the scarcity of attractive alternative savings options. Expectations of continued increases in home and land prices allowed property developers to borrow rapidly, with land sales providing crucial revenue for local governments.
More recently, the authorities have appropriately focused on containing risks and helping the sector transition to a more appropriate and sustainable size. They took resolute action to rein in excessive developer borrowing and other property sector risks after the start of the pandemic. Real estate activity has since contracted sharply, and most recently the authorities have aimed to boost rental housing, expand affordable housing, and upgrade under-developed urban neighborhoods.