Chinese real estate sector hopes for support from the authorities

The Chinese real estate sector is looking forward to more stimulus policies from central and local governments amid a still challenging outlook for the coming months. This was stated by Chen Xiaotian, president of real estate consultancy EH. Consulting, reports SteelMint.

«Many real estate developers restored confidence at the beginning of this year, as the release of pent-up demand did give a brief boost to the property market. However, since mid-to-late March, the situation has worsened in most cities (across China),» he said.

According to the National Bureau of Statistics of China (NBS), real estate sales in the country in January-May fell by 0.9% y/y – to 464.4 million square meters. In addition, over 5 months, the total area of ​​new real estate projects fell by 22.6% y/y – to 379 million sq. m., and the number of facilities under construction also decreased – by 6.2% y/y, to 7.8 billion sq. m.

At the same time, it is expected that the total area of ​​new projects by the end of 2023 may be reduced to 960 million square meters, in particular, due to low market expectations and a decrease in land operations.

China’s investment in fixed assets in the real estate market in January-May fell by 7.2% y/y – to 4.6 trillion yuan. Financing in the domestic market during the current year may decrease by 8%.

«There is no doubt that the Chinese government will beef up efforts to maintain stability in the property sector. In fact, we’ve already seen some positive signals in June, such as the new progress in property developers’ funding plans and the introduction of more house purchase support policies by several municipal governments,» said Chen.

While China is expected to unveil more stimulus to bolster the property market as a pillar of the economy, the industry is unlikely to see strong stimulus this year. Rather, the policy focus will be on meeting the underlying demand from first-time homebuyers and upgraders.

In addition, the Chinese government will continue to prioritize the timely completion of pre-sold homes. In January-May 2023, the area of ​​commissioned housing in the country increased by 19.6% compared to the same period last year. According to EH. Consulting, in 2023 this figure will exceed 1 million square meters.

The Chinese real estate sector is the main consumer of steel in the country. The situation on the real estate market has a significant impact on the prices of steel products and raw materials for their production. In particular, at the beginning of the year, when the sector was at its peak, steel and raw material prices were supported at high levels, as demand from the construction industry created a positive outlook. Starting in late March, steel and raw material prices began to fall on the back of unjustified demand expectations from the real estate sector and weak economic performance in China.

Low domestic demand forces Chinese steelmakers to export surplus steel. During 2023, Chinese steel shipments abroad are likely to increase to a 7-year high of 67-77 million tons. Only in January-May 2023, the country’s steelmakers increased the shipment of steel abroad by 41% – to 36.4 million tons.