China’s cooling property market could weigh on the economy
A slowdown in the property sector, a driver of economic growth, could squeeze anything from investment to consumption and local government revenue, analysts say
China’s property sector, a key growth driver of China’s economic uptick in the first half of the year, is likely to sputter and weigh on the economy in the following months, impacting anything from commodity prices to government revenue, according to analysts.
Real estate investment which has so far been an economic pillar, grew 8.8 per cent in the first five months, according to the National Bureau of Statistics (NBS). The pace overtakes the 6.9 per cent economic growth in the first quarter.
But as investment is a laggard indicator with a six-month gap to property sales, the weakening home sales due to cooling measures – the government’s toughest curbs in a decade, have raised the alarm.
National property sales have already slowed, with growth for new residential properties sliding to 12.6 per cent for May and 15.3 per cent for the first five months. The growth declines compare with the expansions of 20.1 per cent during the January-April period and the 36.2 per cent peak in December 2016.
In tandem, January-May’s real estate investment at 3.76 trillion yuan (US$553 billion) reflected the first slowdown since July 2016, and is likely to further decline in the coming months. Real estate investment in 2016 accounted for 17.2 per cent of China’s total fixed-asset investments.
Fitch Ratings said it expected China’s cooling measures to weigh on the economy.
The firm said the housing market was closely linked to the domestic credit cycle: a weaker credit impulse, along with the tightening of home purchase restrictions, is likely to drag down home sales growth further in the second half.
“There tends to be a six- to eight-month lag from sales to housing investment growth, which means that the economic impact of the housing market slowdown will continue well into 2018, when we expect GDP growth to slip slightly below 6 per cent,” it said in a report.
Granted, weak property sales will also squeeze domestic consumption. Sales growth in property-related businesses such as building and decoration materials, fell to 11 per cent in May, from 17.8 per cent in March, according to NBS.
There tends to be a six- to eight-month lag from sales to housing investment growth, which means that the economic impact of the housing market slowdown will continue well into 2018, when we expect GDP growth to slip slightly below 6 per cent
In the first quarter, value-added property services such as leasing, property management and marketing, which contribute to China’s service industry, grew 7.8 per cent from a year earlier. The service industry – which grew 7.7 per cent in the quarter – accounts for 56.5 per cent of the economy.
But analysts say they won’t be expecting value-added property services to lead growth in the service industry in the second-quarter.
Developers’ dampened interests in land acquisition would also hurt revenue income for local governments, which depend heavily on land sales. National land sales growth in the first half have already slowed to 34 per cent to 1.47 trillion yuan, from the 51-per cent surge recoded in the first quarter, according to the China Index Academy.
Weaker government revenue would in turn affect financing for infrastructure, another pillar of the Chinese economy.
“Both property and infrastructure are unlikely to perform well in the second half, which makes investment in manufacturing the key,” said Zhang Jun, chief economist with Morgan Stanley Huaxin Securities.
“It is to be seen whether manufacturing investment could hold up the economy,” he said.
Sales in the first-tier cities, where property curbs are strongest, have showed a significant slowdown since March.
In Beijing, secondary home sales in June fell below 10,000 units for the first time in nearly two years, as sales dropped for the third consecutive month from a peak in March of 30,737 units. In Shenzhen, new home prices fell for the ninth straight month in June.
