Is China At Peak Property?

An extended slump in home sales may be a bigger drag on growth this year than lockdowns

- Tom Hancock and Emma Dong

While global attention is focused on the economic impact of coronavirus lockdowns in Shanghai and Beijing, the slump in China’s housing market is likely to have even more profound implications.

An official index that tracks apartment and house sales has posted year-over-year declines for 11 months straight—a record since China created a private property market in the 1990s. With demand for services and commodities generated by housing construction and sales accounting for about 20% of gross domestic product, that represents a big drag on growth this year. “This is the worst property downturn on record,” says Lu Ting, chief China economist at Nomura Holdings Inc. The length of the drop exceeds those in 2008 and 2014, which reverberated through global commodity markets by curbing Chinese demand for imported steel and copper.

The slump began last year as Beijing took steps to slow the growth of mortgages and funding for property developers to help tame bubbly prices and reduce financial risks. President Xi Jinping is sticking to his tough stance, which some economists say could result in an historic peak in property construction and ensure China’s GDP growth rates average less than 4% over the rest of the decade.

The pace of China’s housing sales declines was expected to slow marginally this year as local governments relaxed curbs in the interest of supporting growth. But because of lockdowns in Shanghai and dozens of other cities since March, this year’s drops are actually bigger than in 2021. Even though many of the country’s largest cities loosened restrictions on home purchases in recent months and its central bank cut mortgage rates by a record amount in May, sales in major cities declined more than 40% from the previous May as lockdowns closed businesses and joblessness spiked.