Lu Ting, Chief Economist for China at Japanese Nomura Securities, delivered a speech at the 2024 Tsinghua Wudaokou Chief Economist Forum on September 28. Lu pointed out that the most significant pressure on China’s economy comes from the real estate sector and “ensuring housing delivery” is at the core of resolving the issue.
He explained that in China, real estate operates on a pre-sale system – people buy and pay (including mortgage payments) before the property is built and delivered to them. This is more akin to a futures market than a spot market. Many people propose policies to address extra houses being built but not sold. However, the real issue is not the extra houses being built, but that too many have been sold without being completed.
Using data from real estate builder Country Garden, Lu noted that the company has approximately 36,000 completed but unsold houses, 730,000 houses sold but still under construction, and 350,000 houses currently being built but not sold yet, reflecting a ratio of about “1:20:10.”
Lu estimates that the government needs over 3 trillion yuan (US$ 426 billion) to address the issue of “ensuring housing delivery.”
Source: Net Ease, September 28, 2024
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