Fixing China’s property sector will take social housing, not a new market boom

A new round of troubles of high-profile developers has added to the urgency policymakers feel to stabilise China’s ailing property market

While the near-term priority is to stop the bleeding, longer-term reforms such as increasing social housing are needed to put the market on sustainable footing

3-MIN READ3-MIN

A construction site in Shanghai on August 15. China’s House Price Index fell by 0.1 per cent year on year in July, marking the fifth month of declines, while new home prices dropped by 0.2 per cent on a monthly basis. Photo: EPA-EFE

Aidan Yao

Aidan Yao is a senior investment strategist for Asia at Amundi, based in Hong Kong.

Published: 6:15am, 18 Aug 2023

China’s real estate market has been undergoing its longest and deepest adjustment since the 1998 reform that gave birth to the commodity housing market. As a pillar industry with extensive reach, the property market woes of the past two years have greatly affected the economy, depressed asset markets and weighed on confidence. Many foreign investors consider it the biggest macroeconomic risk to Chinese assets.

However, as this painful adjustment reaches its second anniversary, there is the lingering question of how and when can China resolve its real estate predicament and bring the sector back from the brink. The urgency to find an answer has become more pronounced lately as the financial troubles of high-profile real estate developers such as Country Garden have started to rattle markets again.

To be sure, this is an issue concerning not just the property market but the entire economy and even systemic financial stability. A three-pronged strategy – ranging from near-term actions to medium and long-term reforms – is needed to tackle this challenge.