China’s latest efforts to stabilize its troubled property market are predicted to offer a modest boost to economic growth this year, according to a recent Bloomberg survey of economists.
On May 17, China unveiled a comprehensive rescue package aimed at revitalizing its beleaguered property market. The survey revealed that seven out of 12 economists expect the measures to contribute an increase of between 0.1 and 0.3 percentage points to the gross domestic product (GDP) in 2024. Four economists predict a smaller boost, less than 0.1 percentage points, while one economist foresees no impact.
The specifics of the rescue package amount to rather measured support.
The median forecast for GDP growth in 2024 slightly improved to 4.9%.
The government’s support package includes lower down-payment requirements for homebuyers and a 300 billion yuan ($42 billion) fund from the central bank to help local authorities purchase excess inventory from developers. These properties are expected to be converted into affordable housing.
“The specifics of the rescue package amount to rather measured support,” commented Erica Tay, an economist at Maybank Investment Banking Group. “But this might be the first salvo, with more to come.”
Although the efforts signal a renewed commitment to tackling one of the main challenges facing the Chinese economy, the announced funding is only a fraction of what some analysts believe is necessary to address the housing supply-demand imbalance.
Lynn Song, Greater China chief economist at ING Bank, noted, “Even if prices establish a trough this year, there is still a high level of housing inventories which will take time to work through. Before these inventories are normalized, it is difficult to expect a significant turnaround in real estate investment and construction activity, which is the primary direct impact on GDP growth.”
Economists also anticipate the People’s Bank of China will cut the reserve requirement ratio (RRR) for banks by 25 basis points before the end of June, releasing funds for loans and investments. However, they do not expect a cut to the central bank’s one-year policy rate before the third quarter. Previously, a rate cut was expected by the end of June.
Before these inventories are normalized, it is difficult to expect a significant turnaround in real estate investment and construction activity.
The Communist Party’s Politburo has called for the “flexible use” of policy tools, including interest rates and the RRR, to lower funding costs, raising expectations for additional monetary support to achieve the target of around 5% economic growth this year.
