Investment in real estate development for the full year 2023 dropped 9.6% y-o-y, down a further 0.5 percentage points from the first three quarters but with the growth rate improving 0.4 percentage points on the previous year, to record RMB11.1 trillion. Residential investment alone fell 9.3% y-o-y, a 0.9 percentage points steeper fall than for the January to September period. but up 0.2 percentage points from 2022, to reach RMB8.4 trillion.
Investment has now declined for two consecutive years, indicating diminished funds flowing into the real estate industry. In an environment of industry adjustments and weak sales returns, the recovery of the real estate industry will still be a challenge in the short-term.
Key Takeaways
- Investment in real estate and residential development declined and continued to contract in size
- Completed area exceeded the new construction area for the first time on record
- New home sales recorded a near 13-year low
- Policy stimulus and supply release at the year-end, yet weak destocking performance
- Sales prices fall in new and second-hand housing
- Average new home prices rise 6.7% y-o-y due to structural factors
Summary and Outlook
China's economy withstood internal and external pressures in 2023 and rebounded to robust 5.2% y-o-y growth after the prolonged COVID period. Manufacturing and domestic consumption increased solidly although exports slowed due to sluggish outbound demand. The property market woes have also hindered economic growth. In 2023, investment in real estate contracted 9.6% y-o-y, investment in residential development dropped 9.3%, and government revenue from land sales fell by 13% on the previous year, demonstrating that the scale and contribution of the real estate sector is sliding.
The total sold area of newly-built residential units in 2023 was less than 950 million sq m, the lowest level of the past 13 years. On the other hand, the average new home price in 2023 hit a new record high at RMB10,864 per sq m. There are two structural factors behind this phenomenon of transaction area falling but average prices rising. The continuing support initiative for homeowners with replacement-upgrade demand took effect, leading to a rise in the proportion of high-priced residential units sold. Meanwhile, major cities have gradually lifted restrictions on home purchases, pushing up the share of key cities’ transaction area where average home prices are generally higher than the nationwide level.
The push of guaranteed delivery of pre-sale units combined with in-depth optimization of real estate policies in Q4 2023 improved market confidence, driving transaction area in the 24 major cities out of the trough of Q3. According to the Ministry of Housing and Urban-Rural Development (MOHURD), new home sales slid in 2023 although second-hand home transaction numbers rose, and the combined transaction area of new and second-hand homes maintained positive growth.
In the mid-term, we expect the policy focus to remain on ensuring delivery of pre-sale units, boosting confidence and stabilizing the market. However, the scale of new home supply is set to shrink along with the contraction of investment in real estate. Under the general economic uncertainties, market performance will diverge depending on region and product quality. Considering that the marginal utility of policy stimuli will diminish, steady growth in the macroeconomy is still vital to the recovery of the real estate market.
