China May Take Over a Decade to Recover

Home sales in China dropped 16.5% year-over-year in 2023, slumping even as stimulus measures were rolled out over the last quarter

China could feel the effects of its property crisis for more than a decade, as it will take a long time to clear all the available and developing inventory in its housing market, according to one economist. In an interview, GROW Investment Group chief economist Hao Hong predicted there would be a prolonged correction in China's property sector. That differs from previous economic downturns in the nation, Hong said, as China's property sector has historically responded to stimulus measures in as little as two to three quarters.

But recovery will look different this time, thanks to a crisis shaping China's real estate market. Major property developers have buckled under the weight of their debts, and demand and investment in the nation's housing has collapsed.

Home sales in China dropped 16.5% year-over-year in 2023, slumping even as stimulus measures were rolled out over the last quarter.

Given the current pace of sales, it could take around two years to clear all outstanding inventory in China’s real estate market, Hong estimated. And when considering the six million square metres of property that's still under construction in China, it could take even longer. “At this rate, it will take probably more than 10 years to clear all all those housing under construction. So all in all, we're talking about multi-years in terms of correction,” Hong said.

China's real estate slump could also bring prolonged trouble to China's economy, where its property market is a key pillar. China's GDP is set to shrink four percentage points by 2026 due to the nation's housing decline, something that could slash four million jobs, according to an analysis from Bloomberg Economics. The nation's banking system could see a $4 trillion wipeout while its property sector fully corrects, veteran investor Kyle Bass estimated.