China population decline is hurting its property market

The Chinese real estate sector has faced a slowdown in deepening for years. Now, a narrowed population throws another shadow on the stagnation real estate market.

Goldman Sachs estimates that the demand for new houses in Chinese urban cities will remain deleted less than 5 million units per year in the coming years – a quarter of the peak of 20 million units in 2017.

“The decline in the population and the slowdown in urbanization suggest a decrease in the demographic demand for housing” in the coming years, economists from Goldman Sachs said on Monday in a note.

It is estimated that the population of the country fell to less than 1.39 billion by 2035 1.41 billion, according to the latest data from the World Banksaid Tianchen Xu, principal economist at Economist Intelligence Unit, citing a combination of less newborns and more deaths of an aging population.

The narrowing of the population paralyzes the demand of houses of 0.5 million units each year in the 2020s and training to a larger drop of 1.4 million units per year in the 2030s, estimates Goldman Sachs, compared to the positive contribution of 1.5 million units in the years 2010, when the population increased regularly.

The fertility rate in the country has continued to decrease Even after Beijing relaxed its unique policy in 2016, and despite Beijing’s efforts to encourage children via cash incentives. Stagnant income, instability in employment prospects and a mediocre social security system have dissuaded young Chinese people from having more babies.

Beijing pronatalist policies will probably have “a limited effect” because they do not deal with deeply rooted problems, said XU, as high economic costs for children and the tendency of people to postpone marriage for the progress of career and “an embrace of individuality”.

Stressing the drop in birth rate rates, nearly 36,000 children’s gardens across the country have closed the number of pupils in nursery schools over 10 million in the past two years. It is according to the CNBC calculation of the official Data published the Ministry of Education. Likewise, the Number of elementary schools Fucked down nearly 13,000 between 2022 and 2024.

This strives with the accommodation markets adjacent to the school which have already seen inflated prices on the back of high demand for better public schools.

The formerly considerable premium has been fueled by access to elite schools and the expectations of the increase in properties. But with a population in narrowing and local governments reducing registration policies based on the district, the added value of these houses began to decrease, according to William Wu, real estate analyst in China at Daiwa Capital Markets.

A 7 -year -old boy in Beijing told CNBC that the price of her apartment had dropped about 20% compared to more than two years ago when she bought it. This cost him about double the average price of an apartment in the city, so that his son could attend good primary school.

The number of children entering primary school in 2023 reached the highest level in more than two decades, according to Wind Information, before dropping in 2024, the year of his son.

This demographic change is an additional overhang for the real estate market, which has struggled to emerge from a painful slowdown since the end of 2020. Despite a raft of Central and local government measures Since last September, the real estate crisis has shown little sign of slowdown.

The new prices of houses fell at their fastest pace in seven months in May, according to Larry Hu, chief economist of China at Macquarie, extending a stagnation of two years, despite the efforts of the government aimed at stopping.

Sales of new houses in 30 large cities fell 11% over a year in the first half of this month, which has a decrease of 3% in May, Hu.

“Investment properties holders are likely to be net sellers (owners-occupants) in the foreseeable future”, on the expectations that the prices of houses will continue to decrease, estimates Goldman Sachs.

While Goldman expects the increase in the urbanization rate of China to end in the coming years, harming the demand for urban housing, Wu said that demographic trail on the real estate market was not yet “imminent” and could take decades to play.

Closer to, “part of this drop will be offset by continuous urbanization and demand for upgrading housing,” said WU, because the latter would explain an increasing share of total housing demand in China.

– Evelyn Cheng de CNBC contributed to this story.