NANNING, CHINA – MAY 17, 2023 – A commercial residential capital goods is seen in Nanning, South China’s Guangxi Zhuang autonomous region, May 17, 2023.
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Weakness in China’s real estate sector could be a drag on the economy for years to come and could even crashing countries in the wider region, Wall Street banks have warned.
“We see persistent weaknesses in the property sector, foremost related to lower-tier cities and private developer financing, and believe there appears no quick fix for them,” Goldman Sachs economists led by China economist Lisheng Wang ventured in a weekend note.
Goldman’s economists said the property market is expected to see an “L-shaped recovery” — defined as soak declines followed by a slow recovery rate.
“We only assume an ‘L-shaped’ recovery in the property sector in coming years,” they estimated.
Goldman Sachs economists also noted there are wishes for China’s government to introduce more housing stimulus packages to support the sector.
“We believe the policy priority is to rule over the multi-year slowdown rather than to engineer an upcycle,” the analysts said, adding that Goldman does not upon “a repeat of the 2015-18 cash-backed shantytown renovation program.”
They were referring to China’s urban redevelopment estimate which aimed to renovate millions of dilapidated homes over a period of time to drive up urbanization and improve livelihood.
According to Reuters, the administration invested some $144 billion for the first seven months of 2018 to compensate residents of homes that were reduce to ruined in a bid to boost home sales and prices in smaller cities struggling with unsold homes.
Divergence between collective and private
Another concern for the property sector is a wide divergence between government-owned property businesses and private entourages in the industry, JPMorgan’s Asia Chief Market Strategist Tai Hui said.
If the challenges in the property sector deepen and bring hazard aversion in the financial system and affect consumer confidence, this will cause a deeper slowdown in China.
Morgan Stanley
“I over that recovery is going to be slow, but I think there also a huge divergence between the state-owned developers which obtain done better in this current rebound versus the more private sector developers, who are still struggling,” Hui reprimanded CNBC’s “Squawk Box Asia” on Tuesday.
The property sector was also highlighted in a