China’s homebuilding sector is set to remain in decline for the foreseeable future, despite government efforts to support developers and stabilize the market, according to Capital Economics.
The firm said in a note this week that while policy measures are helping to secure financing and boost sales, they are unlikely to prevent a prolonged slowdown in new construction.
Since the introduction of the “Three Red Lines” policy in 2020, new home starts by developers have plummeted over 70%.
However, Capital Economics states that ongoing construction activity has only declined by about 20%, reflecting the long lag between project starts and completions.
The firm adds that financial strains among developers have further extended these delays.
"New home starts are likely to rise again later this decade," analysts noted, but demographic challenges and slowing urbanization will likely limit any significant recovery.
To better gauge homebuilding activity, Capital Economics has constructed a measure of developer real property investment, adjusting for price changes and excluding land purchases.
Their analysis suggests that while homebuilding activity is still contracting, "the pace of the decline has moderated over the past few years."
Capital Economics notes that developers have been accelerating work on existing projects, with investment per square meter of ongoing construction showing signs of improvement.
Government policies are also said to have played a role in supporting this stabilization.
Capital Economics says initiatives such as the real estate financing coordination scheme and the use of special bonds to purchase unsold homes have helped improve developers’ access to funding.
"By the end of 2024, loans issued under the scheme had surpassed RMB5trn," exceeding the government’s initial target.
Despite these measures, the long-term outlook is said to remain weak. "Real property investment has already fallen around 30% since its peak in 2020," Capital Economics stated, adding that by the end of the decade, it expects this figure to be halved from current levels.
Source: Investing