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China is counting on a pipeline of pent-up demand to power its housing market rebound. It will come from people like Mr. Wang, a 50-year-old farmer from Inner Mongolia we met on a recent research trip. He recently moved away from his hometown for the first time to work as a DiDi private-hire driver in Beijing.  His goal is simple: he’s trying to save up enough of a nest egg for his university-aged son to buy an apartment back home when he eventually gets married. 

Two years of tightened regulatory restrictions fed a nationwide rout in China’s real estate market that cleared away most of the speculative froth. What’s left, our research suggests, is real underlying demand. But how deep does it run, and is it enough for the market to stage a sustainable rebound?  

Official data and our observations on the ground both show new signs of heightened housing market activity in China’s top-tier cities. Salespeople in Shanghai and Beijing tell us they are surprised at the significant increase in the number of visitors to real estate showrooms in recent weeks. Some new housing projects sold out within 24 hours of listing. Existing home prices in tier-1 cities rose 0.4 per cent on a sequential basis in January, reversing December’s 0.5 per cent contraction. New home prices, which were flat in December, registered 0.2 per cent growth. Even in tier-2 cities, new home prices managed their first month-on-month increase since June 2022.

But while a rebound appears to be playing out in China’s megalopolises and provincial capitals, it is far from clear that this will spread to lower-tiered cities, where there is a large amount of unsold inventory. Indeed, nationwide transaction volumes may struggle to grow year-on-year if policymakers do not provide more support for homebuyers on the demand side. 

New normal

China’s real estate industry has been knocked, not just by the pandemic, but by its own problems. The dominos started falling two years ago when policymakers reined in the overexpanded sector after years of growth funded by excessive debt. In the shakeout that followed, some developers failed to repay bondholders or left building projects unfinished, hurting homebuyers’ confidence and sending ripples across the financial markets.

But real estate remains a huge driver for the economy, and as the pandemic dragged down growth, policymakers last year started loosening purchase restrictions in some cities and relaxing funding curbs on property developers. Whether the current rebound can gain momentum will depend on prospective homebuyers feeling confident enough to tap the huge amount of excess savings they amassed during the pandemic. 

Even if homebuyers return en masse, the days of runaway housing booms are unlikely to return. Chinese leaders are standing by their motto: “housing is for living in, not for speculation”. Outgoing premier Li Keqiang said in his annual government work report on March 5 that China will prevent disorderly expansion by property developers and promote the sector’s stable development. Longer term, demand will drop in tandem with demographic changes, as the population shrank last year for the first time in six decades. 

This could lead to more credit divergence between the strong and weak developers this year. Private property developers will continue to be overshadowed by state-owned firms, which have easier access to funding and have more confidence among homebuyers. The recent recovery in places like Beijing and Shanghai will give a boost to those top property developers that acquired more land in higher-tier cities last year, putting them on track for rising contracted sales in 2023. 

It’s probably not enough yet to declare a nationwide rebound for China’s property sector. But as we’ve seen in recent weeks, including the housing dream of Mr. Wang, the post-Covid pent-up demand is real.

Victoria Mio

Victoria Mio

Head of Equity Research, Asia Pacific

Fiona Shou

Fiona Shou

Ming Gong

Ming Gong