China’s property problems appear poised to improve, but can ‘much more risky’ real estate still drive economic growth?

Beijing vows restrictive property policies will be further relaxed, but investors do not seem to have the same speculative mentality they used to

Some analysts say the property sector cannot be the ‘old growth driver’ it once was, while others say it will nonetheless remain a critical pillar of the economy

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Although Beijing is vowing that property policies will be further relaxed, some analysts say it will be impossible for the market to be remade as the same pillar of China’s economy that it used to be. Illustration: Lau Ka-kuen

Published: 6:00am, 31 Jul 2023Updated: 9:21am, 31 Jul 2023

This is the second part in a series on how Beijing’s recent policy shifts have triggered debate over the potential economic risks and benefits for China, including from changes in its property sector. You can read part one here.

A long-held notion among China’s private entrepreneurs was that the best way to offset business losses – or to fund an expansion – was to simply sell off a bit of real estate.

To that end, Steve Wang and his elder brother bought up high-end office space and residences in southern China’s Guangzhou over the past few years. They saw these properties as not only an investment, but also as sort of a rainy-day fund that could be liquidated if times got tough.

This speculative mentality helped China’s property market soar to previously unseen heights over the past two decades, underpinning the entire nation’s economic growth while bolstering the middle class.

Real estate also became a major source of local government revenue, and it sent private property tycoons to the top of China’s rich lists.

And all the while, soaring property prices made homes less affordable to the average person.