Fixing housing problems expected to cost mainland 15tr yuan, Goldman says

China’s housing market is likely to weaken further as efforts to revive the sector have not gone far enough to arrest a three-year slump, and Goldman Sachs estimated the government may need to spend more than 15 trillion yuan (HK$16.2 trillion) to fix the problems plaguing the industry.

Authorities needed to help developers with their funding conditions to complete pre-sold but unfinished properties to ensure social stability, bring existing excess housing stock to “normal levels”, and mitigate annual contraction in property construction, the US investment bank said.

Fixing these problems could help stem further declines in home prices and rebuild consumer confidence, analysts including Wang Lisheng said in a report this month.

It would require substantial costs, well above the funding arrangements available thus far, they added.

“The housing sector has not yet reached the bottom of the L-shaped path that we expect” and headwinds might remain strong in coming years, especially from lower-tier cities and cashstrapped private developers, the analysts said.

The crisis in China’s housing market arose from Beijing’s “three red lines” policy launched in August 2020, which has deprived weak developers of funding lifelines and triggered more than US$160 billion of junk-bond defaults, based on a Goldman estimate.

Secondary home prices had slipped by 20 per cent while new home construction weakened by 16 per cent from its peak, its latest report said.

China may need to provide 4 trillion yuan to close the funding gap faced by the nation’s private developers to ensure they can complete and deliver pre-sold homes to buyers, according to Goldman.

These developers accounted for about 55 per cent of the existing backlog of 3.55 billion square metres in gross floor area, it said in the report.

The current financial support from banks “appears well below the amount needed for securing home completions”, the analysts said, referring to the 469 billion yuan of credit lines handed out to developers up to March 31.

It could separately cost Beijing 7.7 trillion yuan for measures to trim the inventory of unsold homes to levels last seen in 2018. The excess inventory has been building up since mid-2021 and has remained higher than the previous peaks in 2015, according to the Goldman report.

China is also striving to increase the share of public housing to at least 30 per cent of total stock from around 5 per cent currently, according to media reports.

If the 30 per cent target applied to only first- and second-tier cities, the estimated costs could reach 4 trillion to 6 trillion yuan, Goldman said.

The housing sector has not yet reached the bottom of the L-shaped path that we expect GOLDMAN SACHS ANALYSTS