Demand for New Homes in China

BEIJING (Reuters) – Demand for new homes in China is likely to remain substantially below the market’s 2017 peak over the next few years, Goldman Sachs warned late on Monday, indicating a prolonged property slump for the world’s second-largest economy.

China’s property sector, which constituted roughly a quarter of economic activity during its peak, entered a downturn in 2021. Market sentiment has been severely affected by challenges faced by heavily indebted developers attempting to deliver homes that buyers have already paid for.

Goldman Sachs project that demand for new homes will remain below 5 million units per year, significantly less than the 20 million units peak in 2017.

In addition, new home prices dropped in May, extending a stagnation lasting two years, according to official data released on Monday, underscoring ongoing sector challenges despite several rounds of government economic policy support measures.

Goldman Sachs noted, “Our earlier estimates did not consider that investment demand in China could turn negative as owners sell vacant apartments. We expect the 2015-18 government-led shanty town redevelopment to lead to fewer demolitions in the coming years.”

Moreover, holders of investment properties are likely to become net sellers to owner-occupiers for the foreseeable future. With the government’s focus shifting to urban renewal and rehabilitation instead of demolition, average demand for homes due to demolitions is projected to decline from 4.7 million units in the 2010s to 2.7 million units in the 2020s, the bank added.