China Is Waking Up from Its Property Nightmare

China’s property sector shows signs of recovery as luxury sales surge and inventory issues ease in major cities. Despite ongoing trade tensions affecting overall confidence, the economy demonstrates resilience with expectations of moderate growth. Experts speculate that the severe real estate downturn may finally be ending, but challenges remain, particularly in smaller cities.

Over the past few months, a sense of cautious optimism has emerged in China’s real estate sector, signaling an end to a challenging era marked by a severe property crunch. Despite ongoing trade tensions with the United States complicating economic recovery, two positive indicators are emerging for China. One, the economy has shown notable resilience, with projections suggesting that private-sector growth could reach between 4-5% by 2025. Two, evidence is mounting that the relentless property downturn might be nearing its conclusion.

Looking at the property market, a recent high-profile sale in Shanghai’s Changning district has generated a stir. A luxurious property, reminiscent of traditional German architecture, was sold for an eye-watering 270 million yuan (approximately $38 million) on May 27. The sale, with a staggering price of 500,000 yuan per square meter, has been seen as a hopeful signal that the economic nightmare surrounding China’s real estate market might finally be coming to an end.

Speculation about recovery is buzzing across various forums, from dinner tables to corporate meetings and government discussions. Property accounted for around 25% of China’s GDP before the market crash in 2020. It has since diminished to under 15%. This slump has drastically impacted consumer confidence, significantly affecting ordinary households, where the share of wealth tied up in real estate has decreased from 80% in 2021 to about 70% now. This situation has left many developers bankrupt and millions of units unsold, contributing to a gloomy economic outlook.

However, some analysts are now cautiously optimistic, noting that the drop in home sales is slowing. The first four months of 2025 witnessed a decline of less than 3% in sales of new homes, a significant easing compared to the sharp 17% drop in 2024. Analysts at S&P Global suggest that sales will only decline modestly for the remainder of 2025.

For a long time, China struggled with an enormous backlog of unsold homes, particularly in major cities. At one point, around 80 million flats remained vacant across the country. Yet, the situation is improving in top-tier cities like Beijing and Shanghai, where inventory is beginning to move. The average time required to sell off this inventory has dwindled from nearly 20 months last year to just over 12 months now, hinting at a turnaround.

Shanghai’s property market serves as a prime example of this resurgence. Transactions have gradually increased from February to April, with luxury properties experiencing a spike in demand. While purchasing controls remain in place, buyers are now more willing to invest in premium real estate. Estate agents report a steady rise in both standard and luxury home prices.

Various factors contribute to this recovery. Firstly, housing market downturns typically take around four years to fully stabilize. Since mid-2020, the Chinese government has taken significant steps to address issues, such as tightening credit to developers. Furthermore, local governments are actively purchasing unused land and housing, driven by the availability of special bond proceeds. Measures like home buying subsidies and planned renovations of shantytowns are designed to stimulate demand.

That said, challenges persist. The trade war continues to dampen investor confidence, further complicating the situation. Home prices in April fell by 2% across 70 surveyed cities. Sales of new homes and other key metrics have shown disappointing drops. Analysts caution that improvements will largely hinge on ongoing government intervention.

While cities like Shanghai are ready to bounce back, smaller cities may lag behind. In Wenzhou, significant price drops persist, with some new homes reportedly available at discounts exceeding 50%. Local residents cite the trade war’s adverse effects on the manufacturing sector as part of the problem. Experts from S&P project flat new-home prices this year in major cities, with modest growth anticipated next year, but further declines in third-tier and smaller cities.

In summary, while China appears to be turning a corner in tackling its property crisis, the recovery is uneven across the country. Ensuring that the revival extends beyond luxury properties in major urban centers will be a critical challenge for policymakers moving forward.

In summary, signs point toward a potential recovery for China’s property market, as recent luxury sales and easing of inventory problems in major cities suggest an end to the harsh downturn. The broader economy has remained resilient, yet the persistent challenges that smaller cities face underline the uneven nature of this recovery. It remains essential for the Chinese government to facilitate support across all levels of the market, ensuring that revitalization efforts extend beyond just high-end mansions in urban areas like Shanghai.

Original Source: www.hindustantimes.com