Since the beginning of this year, despite China's central government's implementation of a package of stimulus policies, the fundamental weakness in its real estate market has not been fundamentally alleviated. According to data from the National Bureau of Statistics (NBS), in the first 10 months of this year, the sales area of newly built commercial housing nationwide was 77.93 million square meters, a year-on-year decrease of 15.8%; the sales value of newly built commercial housing was RMB 7.6855 trillion, down 20.9%. Additionally, data from the China Index Academy shows that in the first 11 months of this year, the total sales of the top 100 real estate enterprises were RMB 3.8516 trillion, a year-on-year decrease of 32.9%, with the decline narrowing by 1.8 percentage points compared to October. In November, the sales of the top 100 real estate enterprises decreased by 9.46% year-on-year and by 18.62% month-on-month. Despite continuous incremental policy stimuli, the real estate market showed little sign of recovery in November. On December 16, data released by the NBS showed that in November, among the 70 large and medium-sized cities, the number of cities where the sales prices of commercial residential properties increased month-on-month rose. In first-tier cities, the sales prices of commercial residential properties increased on a month-on-month basis overall, while the decline in second- and third-tier cities narrowed. The year-on-year price decrease in cities across all tiers also showed a narrowing for the first time this year. In response, researchers at ANBOUND believe that regardless of the current focus of the Central Economic Work Conference or the reality of pillar industries, real estate has risen to a top priority for preventing risks next year.
On the one hand, from the perspective of policy logic and priorities, the Central Economic Work Conference has clearly proposed that the key to next year's economic work is to stabilize the real estate and stock markets. This follows the Central Politburo's meeting on December 9, which outlined that by 2025, the real estate market must be stabilized, reflecting the central government's firmer stance on stabilizing the real estate market. Among the key tasks discussed in the meeting, it was clearly stated that risks in key sectors must be effectively prevented and resolved, and the bottom line of avoiding systemic risks must be firmly upheld. This marks the third consecutive year that real estate risk prevention has been included as a topic in the Central Economic Work Conference. In the 2022 Central Economic Work Conference, it was explicitly stated that "effective prevention and resolution of major economic and financial risks" should be achieved, with a focus on ensuring the stable development of the real estate market and preventing risks related to leading real estate enterprises. The 2023 Central Economic Work Conference also emphasized "sustained and effective prevention and resolution of risks in key sectors", including the "active and steady resolution of real estate risks."
The content maintains the tone of previous discussions while further clarifying that efforts must be "continuously intensified to stabilize the real estate market and halt its decline". This signals that various support policies are likely to be more fully implemented. Compared to the language used in the Central Politburo meeting on September 26, such a statement demonstrates a stronger commitment, reflecting a growing determination to stabilize both the real estate market and the broader economy by 2025. In fact, the real estate sector, whether as collateral or in financing activities, is closely intertwined with risks related to local government debt and financial institutions. To effectively manage risks and firmly maintain the bottom line of avoiding systemic financial instability, addressing and mitigating real estate risks is a critical first step.
It is particularly noteworthy that there has been a change in the wording at this meeting. Compared to the assessment of major risks in 2024, the mention of local government debt risks has been removed, but the references to real estate and small- and medium-sized financial institutions' risks remain, with the majority of the discussion focusing on real estate. The risk related to small- and medium-sized financial institutions is mentioned in only one sentence. This indicates that real estate risk has been prioritized as the top focus in the prevention of risks for the coming year.
On the other hand, from the perspective of the current economic reality, the real estate industry, as an important component of China's domestic demand, is also a key focus of this year's Central Economic Work Conference in driving domestic consumption. It will maintain its position as a pillar industry in the medium to long term. Data shows that in 2023, the added value of the real estate industry was RMB 7.4 trillion, accounting for 5.9% of GDP. Since 2003, the State Council's Document No. 18 has positioned real estate as a pillar industry. Over the past 20 years, real estate has become one of the main engines driving China's economic development. Looking at the GDP contribution from the real estate industry's added value, from 2000 to 2023, the added value of the real estate industry increased from 414.1 billion yuan to RMB 7.4 trillion, and its share of GDP rose from 4.1% to 5.9%.
Moreover, the real estate industry drives the output of dozens of upstream and downstream industrial chains. Through investment and consumption, real estate directly stimulates manufacturing sectors related to housing, such as building materials, furniture, and wholesale, while also significantly boosting the third sector, including finance and business services. According to the latest 2020 input-output table of the NBS, it can be estimated that the broad real estate industry has fully driven the GDP of its upstream and downstream industries by RMB 10 trillion and directly driven the GDP of these industries by RMB 2.4 trillion. By sector, the GDP value added driven by the broad real estate industry is led by monetary finance, retail, steel rolling, and gypsum cement, at RMB 810.7 billion, RMB 423.0 billion, RMB 352.7 billion, and RMB 282.0 billion, respectively.
Additionally, land revenue remains a core component of local government finances, with related taxes and fees constituting an important part of local fiscal income, collectively accounting for over 40% of total revenue. If one considers only the local government's own fiscal revenue and government fund income, the total local fiscal revenue in 2023 was approximately RMB 18.4 trillion. Of this, local government's own revenue amounted to RMB 11.7 trillion, accounting for 63.9%, and taxes directly related to land and real estate accounted for 10.1% of local fiscal revenue. Government fund income totaled RMB 6.6 trillion, or 36.1%, with land transfer revenue accounting for 31.6% of local fiscal income. Therefore, without considering land financing, land finance contributed approximately 41.7% of local fiscal revenue.
As a pillar industry in the medium to long term, the real estate sector has been in a state of weakness in recent years. If the real estate sector collapses, it would severely impact China's economy, employment, local government finances, and financial stability, threatening social security and stability, and even potentially leading to the risk of falling into the "lost three decades" trap, as seen in Japan. Therefore, real estate has naturally become a top priority in risk prevention for the coming year. Finding solutions to mitigate or slow down real estate risks will be a significant challenge that requires continued exploration and collaboration, with all parties contributing ideas and strategies.
Final analysis conclusion:
Since the beginning
of this year, despite the Chinese central government implementing a series of
stimulus policies, the fundamental weakness in the real estate market has not
been fundamentally alleviated. Therefore, whether considering the current focus
of the Central Economic Work Conference or the reality of pillar industries,
real estate has become the top priority for risk prevention in the coming year.
Finding solutions to mitigate or slow down real estate risks requires input and
strategies from all sides.
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Xia Ri is an Industry Researcher at ANBOUND, an independent think tank.
