April 19, 2024
The IMF expects new housing demand in China to fall by about 50% over the next decade

Pictured here is a real estate project under construction in Huai’an, China on January 21, 2024.

Nurfoto | Nurfoto | getty images

The IMF said it expected “fundamental demand for new housing” in China to fall by 35% to 55% due to a decline in new urban homes and a large inventory of uncompleted or vacant properties.

The report said slowing demand for new housing will make it more difficult to absorb excess inventory, “prolonging the adjustment over the medium term and weighing on growth.”

China’s real estate sector and related industries account for about a quarter of the country’s GDP. The latest slide in the property market follows Beijing’s crackdown on developers’ high reliance on loans to fund development in 2020.

Zhengxin Zhang, China’s representative to the IMF, said in a Jan. 10 statement included in the organization’s report released Friday that the forecast decline of about 50% in new housing starts “forecasts a potential market recession.”

Zhang said China’s housing demand will remain large and policy support will come gradually.

“Therefore, the likelihood of a significant decline in housing demand is very low,” he said. “The reasonableness of the base period selected is also debatable.”

The IMF report compares housing demand and new starts over the period 2012 to 2021 with projections for 2024 to 2033.

China’s real estate sector has grown rapidly over the past few decades, prompting officials to warn against betting on price increases and to emphasize that “homes are for living, not for speculating.” No.”

The IMF reported that in the 2010s, the share of residential investment in GDP in China was near or above the peak levels of property booms in other countries in the past.

“The major asset market recovery following government efforts to control leverage in 2020-21 was warranted and needs to continue,” the IMF report said.

The past three years have seen highly indebted developers from Evergrande to Country Garden default on US dollar-denominated debt held by foreign investors. This week, a Hong Kong court ordered the liquidation of Evergrande.

From the end of 2022, Chinese authorities have taken steps to ease financing restrictions for developers and new home buyers. However, central and local government efforts to support real estate have not yet prevented a widespread decline in the sector.

“It is important for the central government to come up with enhanced financing to complete the unfilled pre-sale housing stock,” Sonali Jain-Chandra, mission chief for the IMF’s China, Asia and the Pacific department, told reporters on Friday.

“This has been another factor holding back confidence in the market,” he said.

Consumer confidence has fallen amid uncertainty about future income. Chinese stocks have also declined so far this year.

The IMF said Chinese officials consider the fiscal stance “accommodative” in 2023 and will maintain such a stance in the coming year.

“Officials are developing a policy package to prevent and address [local government] debt risks,” the IMF report said. When asked, Jain-Chandra said he did not have details about the expected size of those measures.

The People’s Bank of China announced last week that starting Feb. 5 it would cut the reserve requirement ratio, the amount of cash banks must hold, by 50 basis points. This was the biggest such cut since 2021.

“We think this is a step in the right direction, but we think additional monetary policy easing is needed, especially the policy,” Nir Klein, deputy mission chief for the IMF’s China, Asia and the Pacific department, told reporters on Friday. Rate in means.”

“At the same time, we believe China needs to implement some monetary policy reforms,” ​​he said.

According to official data released last month, China’s economy is expected to grow 5.2% in 2023.

That’s down from the 5.4% projected by the IMF for December, with Jain-Chandra saying the miss was due to “weaker than expected consumption in the fourth quarter.”

The international lender estimates China’s growth will slow to 4.6% this year.

The IMF’s analysis found that shifting supply chain production – either to the home country or to partner countries – could reduce GDP growth by about 6% in China and 1.8% globally.

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Looking ahead, the IMF expects inflation to rise to 1.3% this year, and falling energy and food prices to be the main cause of price declines in 2023.

The core consumer price index, which excludes food and energy prices, rose 0.7% last year, more than the 0.2% increase in the overall CPI.

The IMF report notes that housing has driven inflation in other countries, but in China, the decline in real estate has weighed on prices.

Source: www.cnbc.com

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