Chinese Property Market Outlook

It is easy to get overwhelmed by the deluge of data on China property, from over-leveraged property companies to government restrictions on property purchases (‘Houses are for living in, not for speculation’, Xi Jinping). We believe two data points in particular help to explain why the China property market will not be the engine of growth that it once was.

During the Global Financial Crisis, China was able to lean into the property market to stimulate growth. At that time, household debt/GDP was only 19%, and the urbanization rate was still a low 45%. Fast forward 14 years and the situation has changed significantly. Household debt/GDP is now at 61%. Putting that into perspective, US household debt/GDP is 77%, but GDP per capita in the US is nearly 5x higher at $61,280 versus $12,556 in China. The ability of the Chinese consumer to take on more debt to buy property is not what it was a decade ago.

Urbanization has been a fundamental driver of economic expansion in China for decades. In 1980, the urbanization rate was below 20%. The shift from an agrarian to an industrial economy exploded in the 2000s, with infrastructure and property investment leading to the commodity super cycle. Now the urbanization rate is 64%, so the fast growth phase is over. So as much as economists and analysts call for removing restrictions and easing lending to support the residential property market, there is not much they can do, and the property boom times are over.