This summer, homebuyers’ anxiety about apartment completions caused problems in China’s huge property sector – and worries about spillovers to the rest of the economy. economy – to the top again.
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BEIJING – China’s struggling real estate sector could drag the economy and stock market down significantly if authorities fail to provide enough support, Morgan Stanley analysts say know in a report Wednesday.
As of now, Shanghai composite prices have fallen more than 12% this year. Some economists have slashed their China GDP forecasts to nearly 3% or below this year as Covid controls and a real estate slump hit growth – the official target is around 5.5 % in this year.
This summer, home buyers worry about finishing the apartment Problems in the huge real estate sector – and worries about spillovers to the rest of the economy – are at the forefront again.
Morgan Stanley analysts often expect the Chinese government to quickly work to rescue the real estate industry, including a “large” fund to help developers complete the construction of apartments. That will allow home sales and prices to stabilize in the second half of the year, the report said.
But if such a fund is too small and other measures remain limited, analysts will be less optimistic about the impact on the Chinese economy and stocks.
Here’s how bad they think things can go under a “stress test scenario”:
- China’s stock indexes could fall another 20% from current levels over the next six to 12 months – and are likely to continue lower if the hypothetical stress scenario continues.
- China’s GDP could slow down significantly, growing at an average of 2% in 2023.
- More than 11 million people could lose their jobs, driving the urban unemployment rate above 7%. Construction, accommodation and catering will see the biggest job cuts.
The Chinese government has yet to publicly announce any kind of large-scale fund to assist property developers in completing apartments.
On Wednesday, Premier Li Keqiang headed a meeting Emphasize support to ensure home delivery by arguing that local governments should take a flexible approach in providing special credit and special lending policies.
Morgan Stanley analysts described policy easing to support housing demand as “the most drastic since 2016” and pointed to local governments’ efforts to tackle unfinished homes. Fort.
“The silver lining is the spread [from real estate] For the rest of the economy, it remains manageable for now, analysts said.
A shrinking growth engine
Even if the Chinese government can stabilize the housing market, aging population is expected to reduce demand for apartmentsbring down the real estate industry in the country.
Morgan Stanley’s base-case forecast expects long-term demand for housing to decline by 30% between 2020 and 2030.
That would lead to a 10% to 15% drop in demand for building materials and housing-related items like large home appliances, the report said.
Overall, the downturn in the residential property market will drag down GDP growth by 0.1 percentage point per year, as opposed to an additional 1 percentage point per year increase, analysts say. the past two decades, analysts said.
Household debt soars
Before that, China’s real estate market had boomed for two decades, leading to speculative behavior and increasing risks to long-term economic growth. According to Morgan Stanley, the value of residential sales will increase about 20% a year to 18 trillion yuan ($2.65 trillion) in 2021, or one-sixth of GDP.
Among the many consequences is a spike in household debt-to-GDP ratios from 17% in 2005 to 62% in 2020 – similar to levels in major developed economies, the report said.
In the last few years, Beijing has begun to promote the mantra “home is for living, not speculation”. About two years ago, authorities examined how heavily investors depend on debt for growth.
As of the second quarter of this year, home sales values were 40% below their peak on a seasonally adjusted, year-over-year basis – a decline of 8 trillion yuan, according to a Morgan Stanley report.
The short-term outlook remains dire.
“Covid shutdowns in the second quarter of 22 have exacerbated the housing downturn, by disrupting product completion and delaying restructuring meetings,” the analysts said. debt structure, while undermining future earnings expectations.
Earlier this week, Chinese developer Country garden described the property market as having “quickly fell into a severe recession.”
– Michael Bloom of CNBC contributed to this report.
