Goldman Sachs Predicts Prolonged Slump in China’s New Home Demand
Goldman Sachs reported on Monday that demand for new homes in China is expected to stay well below its 2017 peak for the next few years, signaling a lengthy downturn for the world’s second-largest economy’s property market.
China’s real estate sector, which once made up about a quarter of its economic activity, has been in a prolonged slump since 2021. This downturn has been largely driven by the struggles of highly indebted developers to complete homes that buyers had already paid for, severely impacting market confidence.
The investment bank projects that demand for new homes will likely fall to under 5 million units annually, a significant drop from the 2017 peak of 20 million units. This projection comes as official data released on Monday showed that new home prices continued their two-year stagnation with a further drop in May, underscoring the challenges despite various government support measures.
Goldman Sachs explained that their previous estimates didn’t account for a potential negative shift in investment demand, as property owners might sell vacant apartments. They also noted that the government-led shanty town redevelopment program from 2015-2018 means fewer demolitions are expected in the coming years. They believe that “holders of investment properties are likely to be net sellers (to owner-occupiers) for the foreseeable future.”
With the government now focusing more on urban renewal and rehabilitation rather than large-scale demolitions, the bank anticipates that average demand for homes resulting from demolitions will decrease from 4.7 million units in the 2010s to 2.7 million units in the 2020s.
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