As GDP Rises, China’s Real Estate Market Struggles

China’s real estate market is hitting new lows despite the country’s growing trade revenue.

New home sales in the nation have fallen to their lowest level in more than 15 years and prices for existing apartments are declining rapidly, the New York Times reported. Despite a trade war with President Trump last year, China’s overall trade surplus increased to nearly $1.2 trillion, making the ongoing housing market woes the bigger economic issue.

China’s National Bureau of Statistics released new data reporting an overall 5 percent growth in the economy last year, the same amount as the year before. In the fourth quarter, the Chinese economy grew at a pace that would be 4.9 percent if extended for a full year.

At the same time, households in both urban and rural areas have been tightening their wallets. In November, retail sales were only up slightly from the year prior, making for the worst monthly performance in consumer spending since the pandemic. Last month, retail sales fell 0.1 percent from November’s disappointing showing.

Economists outside of China believe that the economy’s actual growth might be half of what the statistics bureau is reporting. New York-based research firm Rhodium Group, for example, said China’s economy only grew 2.5 to 3 percent last year and will slow down more this year

Some Western economists now say that the economy’s actual growth may be half of what official statistics indicate. Rhodium Group, a New York-based research firm specializing in China, estimates that the country’s economy only grew 2.5 to 3 percent last year and will slow further this year.

The residential slump began four years ago and has gotten worse with every month since. Through 2021, construction and other real estate activities made up about a quarter of China’s economy. But investment in new apartment complexes, office towers, factories and other assets dropped 3.8 percent, according to the National Bureau of Statistics. That marked the first decrease since 1989 when the government stifled investment out of fear of inflation.

Prospective homebuyers have been looking for discounts of up to 80 percent from the market high in 2021, which sellers have been hesitant to accept, putting a halt to the apartment market in many cities. On top of that, the market boasts a large supply of newly built housing while the number of marriages and births each year has dropped. Buyers, then, would rather buy older, often cheaper homes rather than new ones.

“The sharp decline in the real estate sector can almost entirely explain the lackluster economic performance over the past three years,” Zhu Tian, an economics professor at Shanghai’s China Europe International Business School, wrote in a November analysis. A December report from the China Index Academy real estate research firm said that homes listed for sale now sit on the market for an average of 22.2 months before closing.

Meng Xiaosu, a Chinese analyst known as the “godfather of real estate,” believes that prices will start picking up this year. “If measures arranged by the central government — such as converting the purchase of existing housing into affordable housing — can be implemented in certain areas, that would also signal stabilization,” he said, per the New York Times. Local governments in the past have worked to acquire unsold apartments from struggling developers to turn them into affordable housing, but diminished tax revenue and land sales mean that local governments will not be able to afford to pay for those properties.

— Chris Malone Méndez