China: Property sector important for economy - NAB

The real estate sector has been a key driver of China’s economic growth in recent years, helping to support the economy during the transition away from growth led by investment in heavy industry towards domestic consumption, points out Gerard Burg, Senior Economist at NAB.

Key Quotes

“This growth has also built a sizeable debt burden which will have to be carefully managed in coming years to avoid a major downturn.”

“A rebound in real estate growth provided a major boost to China’s economy in 2016 – at a time where fears of a hard landing were elevated. In real terms, real estate and construction grew by 8.6% and 7.2% respectively in 2016, well above the rest of the economy.”

“Growing fears around overheating property markets have seen a tightening in property policies since this time – including higher down payments, restrictions on finance and tighter eligibility for purchases – however these policies have varied across the country. Prices stabilised in tier 1 cities and growth slowed substantially in tier 2 ones. As a result, the strong growth in construction starts and property sales in the first half of 2017 slowed considerably in the second half.”

“We anticipate the slowing trends generally exhibited across the property sector in late 2017 will extend into this year. Slowing sales and softer price trends should flow through into weaker construction activity – which would have downstream effects for steel and cement demand (along with Australian iron ore) and local government revenues (with land sales likely to fall as well).”