"This Year China's Real Estate Investment Growth Rate Declines by -5.0% to -7.5%... Downward Pressure on Economy"

[Image source=Yonhap News]

[Asia Economy Reporter Seo So-jeong] As China's real estate market experienced a significant decline in housing sales and prices last year, the downturn is expected to exert downward pressure on economic growth. It appears difficult for the market to show signs of recovery in the near term, and it is projected to act as a downside risk to the Chinese economy in the medium to long term as well.

On the 15th, the Bank of Korea stated in its report titled "Recent Trends, Policy Responses, and Evaluation of the Chinese Real Estate Market," published in Overseas Economic Focus, that "liquidity risks related to the Chinese real estate development companies are expanding, including an increase in defaults due to deteriorating profitability and financing conditions."

According to the report, the revenue of 72 listed Chinese real estate development companies in the first half of last year was about 1.9 trillion yuan, a 12.6% decrease compared to the same period the previous year, while net profit sharply dropped by 62.5% to 67 billion yuan. Consequently, the net profit margin relative to sales for real estate development companies, which had been declining since 2019, fell to 4.4% in the first half of last year.

The Bank of Korea expects that although the Chinese authorities' expanded policy responses will act as an upward factor for the real estate market, considering weak consumer sentiment and the time lag in policy effects, a rapid shift to recovery is unlikely.

In November last year, the Chinese government took active measures such as comprehensive stimulus packages and expanded liquidity support. As a result, the risk of a hard landing in the real estate market has eased, and the real estate market is expected to gradually show signs of recovery.

However, since consumer sentiment remains low and risks related to insolvent companies persist, it is analyzed that the real estate market will find it difficult to rebound quickly within this year. Despite the expanded policy responses by the authorities, the growth rate of real estate investment in China is expected to decline by approximately -5.0% to -7.5% this year.

The Bank of Korea stated, "It seems difficult for the Chinese real estate market to show signs of recovery in the near term," adding, "As the downturn continues until next year, it may act as a downside risk to the Chinese financial market and economic growth."