Economists at 10 investment banks and securities brokerages, including Goldman Sachs Group Inc., Morgan Stanley and UBS Group AG, expect a downturn in China's housing construction sector next year, which in turn will negatively affect economic growth.
If this forecast comes true, that leaves China on track to post three straight years of contracts in property construction, a record streak. From January to November 2023, the country's main measure of real estate investment fell by 8% per annum. Meanwhile, for the whole of 2022, this figure fell by 8.4% per annum. Economists estimate that real estate-related demand now accounts for about 20% of GDP, compared with 24% of GDP in 2018.
Goldman Sachs economists predict that in 2024, real estate fixed-asset investment will show a "double-digit" reduction. They added that the ongoing downturn in the real estate sector is likely to reduce real GDP growth by 1%. Meanwhile, Morgan Stanley economists expect real estate fixed-asset investment to fall by 7%, while UBS economists forecast a 5% reduction.
The main reason for pessimism about the prospects of the real estate sector is a sharp decrease in the number of new projects in this sector in 2023. That suggests the area of completed projects has room to fall. A concern is also the decline in real estate sales, which leaves developers with less incentive to start construction. Both Goldman Sachs and UBS see real estate sales dropping 5% next year.
Many economists still believe that Beijing has set a very ambitious GDP growth target for 2024 of about 5%, which means that significant fiscal incentives will be needed to offset the slowdown in housing construction.