Real Estate’s Contribution to Chinese Economic Growth Recedes


The latest official data indicates that growth in the added value of China’s real estate sector has fallen behind national GDP growth, with the sector’s contribution to the economy shrinking as new home prices in some first-tier cities post year-on-year declines.

Figures released by the National Bureau of Statistics on 18 April indicates that the added value of the Chinese real estate sector was 1.3845 trillion yuan in the first quarter of 2018, for year-on-year growth of 4.9%.

The reading marks the fourth successive quarter that growth in the real estate sector’s added value has lagged behind GDP growth for the same period, and marks a sizeable drop compared to the growth rate of 7.8% for the first quarter of 2017.

Full year growth in real estate sector added value fell to 5.6% in 2017, as compared to GDP growth of 6.9% for the same period.

Easing growth in the added value of the Chinese real estate sector marks a departure from the prevailing trend for more than a decade, after market reforms of China’s land transfer system were launched in 2004.

Growth in the real estate sector’s added value exceeded 7% in 2005, 2007, 2009, 2011, 2013 and 2016, as well as outpaced GDP growth in the majority of those years.

Analysts say that the changing trends indicates that the real estate sector, which has long been referred to as a “pillar industry” for the Chinese economy, is seeing its contribution to economic growth fast diminish.

“The real estate sector’s contribution rate to economic growth is on the decline,” said Yan Yuejin (严跃进), chief analyst with Shanghai E-house Real Estate Research Institute to 21st Century Business Herald.

Ostensibly this is the result of the housing market control policies launched by municipal authorities around China over a year ago, which included sale and purchase restrictions and curbs on lending, and have served to flatten transaction volumes and contain price growth.

According to Yan, however, the long-term trend in the Chinese real estate sector has shifted, with supply now outstripping demand, and the market lacking foundations for explosive growth.

Yan does not see this development as a bad thing, with the start of a phase of steady development in the real estate market meaning that “cyclical fluctuations won’t be transmitted to economic growth, making economic growth more steady.”

“The Chinese economy’s dependence upon the housing sector for growth has declined, and this will compel a number of cities to change their economic model.”

NBS data indicates that the new commercial housing sales prices for 15 hot spot cities in China held steady overall in March, with seven cities seeing prices post on-month declines of between 0.1% and 0.4%, and only six posting gains, which ranged between 0.1% and 0.2%.

Nine cities saw new home prices fall beneath levels posted during the same period last year.