China’s Real Estate Sector Faces Uncertain Future, Says Former Advisor to People’s Bank of China

China’s real estate sector is currently experiencing a divergence, and despite expectations of further stimulus, a recovery is not expected to happen soon, according to a former advisor to the People’s Bank of China.

Li Daokui, now a professor of economics at Tsinghua University, stated that “The property market right now in China is actually two-fold. It’s actually going into two directions.”

The market has been shaken by faltering consumer confidence in real estate companies, particularly Evergrande and Country Garden, which are facing significant debt issues. Although Country Garden narrowly avoided default, Evergrande has filed for bankruptcy protection.

In July, China’s house prices experienced a slight decline of 0.1% year-on-year after a brief recovery in May, remaining flat in June.

When asked about Beijing’s policy response, Li mentioned that there are numerous meetings and discussions taking place behind the scenes. He added, “They will likely include measures to stabilize the finances of the largest property developers. So any possibility of financial panic should be, and will be dispelled.”

Li also highlighted that the slowdown in China’s property market is not uniform. In major cities like Beijing and Shanghai, high-quality properties and relatively large apartments are being sold at a faster pace than before.

However, sales are declining in third- and fourth-tier cities. Li explained that “there’s still a lot of liquidity among high-income people. However, people who earn a moderate salary are more hesitant to buy.” He expects property sales to pick up in the next six to 12 months in these cities, as well as for smaller apartments.

In recent weeks, Beijing has taken steps to support the housing market, including cutting loan interest rates and easing purchase and sale restrictions.

A Tale of Two Property Markets

According to Li, the situation in China’s property market can be described as a “tale of two markets.” While major cities are experiencing active sales of high-end properties, smaller cities are facing a slowdown in sales. This divergence is due to the varying purchasing power and confidence levels among different income groups.

“So any possibility of financial panic should be and will be dispelled.”

Li Daokui

Professor of Economics, Tsinghua University

In a commentary published by China’s state-owned Securities Times, it was suggested that the lifting of restrictive policies on property purchases in cities other than the top-tier cities should be considered to boost sales and release suppressed demand.

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Clayton Turner is a news reporter and copy editor for 24PalNews. Born and raised in Virginia, Clayton graduated from Virginia Tech’s Frank Batten School of Leadership and Public Policy and majored in journalism.

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