Goldman Sachs analyst says that China’s property sector will remain weak for years

China has been growing as one of the largest economies in the world, but a Goldman Sachs analyst predicts that the nation’s property sector will continue to grapple with persistent weakness for years to come. In fact, its problems will continue to drag on the country’s economic growth for a long time to come.

The analyst said in a client note that weaknesses could especially be felt in lower-tier cities and private developer financing. They added that the country’s policymakers are keen for there to be less economic and fiscal reliance on the property sector. However, they also vowed to avoid using the sector as a short-term lever to spur growth.

The note concluded by saying that the sector is bound to see an L-shaped recovery in years to come.

Over the past two years, the property sector in China saw its fair share of problems. The biggest of them was a severe debt crisis that dominated the industry in the last few years. The crisis was originally triggered by the government’s move to rein in ballooning debt. Many developers ended up defaulting on their payments, and all the while, they struggled to raise funds, even by selling apartments.

The sector did not recover despite the government assistance

The government did not watch quietly, either. It rolled out hundreds of measures meant to help and support the failing sector. The government knew that the industry would need a lot of help to scrape off harsh COVID curbs. This did help somewhat, and there was a noticeable increase in positive investor sentiment toward the sector.

However, the positivity did not last for long, and soon enough, things returned to how they were. The Goldman Sachs note said that the analysts believe the policy priority is to manage the multi-year slowdown. This is what China allegedly prefers over engineering an upcycle. This belief was based on the fact that there was no repeat of the cash-backed renovation program in poorer urban areas, such as the one that was seen in the years between 2015 and 2018.

The country’s property demand remains sluggish while the land bank continues to shrink. Combined, this will likely hamper any plans made by some of China’s private developers, who seek to restructure their debt to revive their fortunes. This is a shared opinion of analysts, developers, and restructuring advisors, and it indicates that China’s property sector is not going anywhere anytime soon.

Still, Goldman Sachs does not expect that the government will abandon the sector. Quite the opposite, it believes that additional measures meant to support it will emerge along the way, such as easing credit conditions for those who borrowed money to buy homes and other forms of property, plus extra mortgage rates cuts, mortgage down-payment ratios, and alike.