Research Briefing | Nov 22, 2022

Look for an L-shaped property recovery with a long tail in China

Policies aimed at managing China’s housing slump have led investors to query the shape and depth of a market correction. We think a meltdown is unlikely and that China’s housing market will instead undergo a protracted L-shaped downturn.

What you will learn:

  • Although the Chinese housing market would appear to be as stretched as the 2007 US and early 1990s Japanese real estate bubbles, the policy measures at China’s disposal are stronger. Also, unlike the Japan or the US housing booms, China is at an earlier stage of urbanisation that will support structural housing demand over the medium term, although at a more moderate pace.
  • So, while a market adjustment is necessary, we think risks are tilted towards a soft landing, albeit with a long correction runway where sluggish prices and activity persist.
  • Political imperatives are likely to result in a policy mix that tackles the issue of vacant properties on the supply side, alongside targeted measures buttressing demand. In that vein, we note that 13 of the points in Beijing’s recent 16-point plan for the sector focused on supply-side measures.
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