Chinese property stocks took a hit today as Goldman Sachs predicts a prolonged recovery for the sector, signaling potential challenges for China’s overall economic rebound.
At midday, Country Garden Holdings Company Ltd (HK:2007), Poly Property Group Co Ltd (HK:0119), and Guangzhou R&F Properties Co Ltd (HK:2777), listed on the Hong Kong Stock Exchange, experienced losses ranging from 2% to 5%. Sunac China Holdings Ltd (HK:1918) fared the worst among its peers, plunging over 12% to nearly 12-year lows. Meanwhile, KWG Property (HK:1813) saw a decline of 7.6%. On the Shanghai Stock Exchange, China Vanke Co Ltd (SZ:000002) dropped 1.1%.
While Chinese bluechip stocks in the broader Shanghai Shenzhen CSI 300 index rose 0.4%, the Hang Seng Index in Hong Kong remained relatively flat.
Goldman Sachs released a note on Sunday, stating that the Chinese property market is heading towards an L-shaped recovery, which will likely impede a broader economic resurgence in the country.
Industry analysts noted that Beijing’s focus was on reducing reliance on real estate as a short-term stimulus measure and stimulating strategically important sectors. As of 2021, the property sector accounted for approximately a quarter of China’s gross domestic product.
Goldman Sachs analysts mentioned that the Chinese economy is also expected to slow due to declining demographic demand, a shift in policy emphasis towards strategically vital sectors, and decreased housing affordability.
Over the past three years, China’s property sector has faced challenges due to stricter funding regulations and a slowdown in development caused by the COVID-19 pandemic. These circumstances have led to notable defaults among developers, who struggled to meet debt obligations amidst dwindling cash flow.
Although the government eased certain restrictions on the sector this year to stimulate growth, the property market has experienced renewed weakness in recent months, particularly as home sales slowed down after an initial rebound.
Goldman Sachs predicts that the government may introduce additional measures to support the sector, primarily aimed at homebuyers. However, it appears unlikely that Beijing will orchestrate an upswing as it has done in the past decade through direct measures.
