July 18, 2024

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China’s housing inventory may take more than 10 years to correct: economist

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The site of a real estate building under construction in Huai ‘an city, Jiangsu province, China, December 26, 2023.

CFOTO | Future Publishing | Getty Images

China is facing the prospect of a long-drawn correction in its property sector, with the overhang in the housing inventory likely to take more than 10 years to clear, according to Hao Hong, chief economist and partner at GROW Investment Group.

“If you look at the inventory overhang situation — at this sales rate — it will take about two years to clear all the inventory that is outstanding in the market,” Hong told CNBC Street Signs Asia on Thursday.

“And then if you look at the property under construction, we have 6 million square meters under construction. At this rate, it will take probably more than 10 years to clear all those housing under construction. So, all in all, we’re talking about multi years in terms of correction,” he added.

Home sales growth and home prices have remained sluggish as real estate developers have been mired in a spiraling debt crisis since 2020 when Beijing kicked off a broader deleveraging of the once-bloated real estate sector — which accounts directly and indirectly for about one third of China’s economic activities.

The measures, known as China’s “three red lines” policy, require developers to limit their debt in relation to the company’s cash flow, assets and capital levels. Property giants Evergrande and Country Garden have emerged as two of the more high-profile casualties among real estate developers in the mainland.

“At this juncture, people have to get used to the idea that it’s probably going to take much longer to clear all the inventories. At the same time, one has to find new growth spots for the economy to go forward, instead of just relying on just the property sector and property investment for economic growth,” Hong said.

He said several market experts did not expect the property correction to last so long.

One has to find new growth spots for the economy to go…

2024-01-04 01:14:00

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