Analysis of China's Latest Real Estate Investment Data: Assessing the Future of the Economy

The National Bureau of Statistics of China has recently released data for May 2024, revealing a troubling situation in the real estate market. The data highlights significant declines across various metrics:

Decline in Real Estate Development Investment

Real Estate Development Investment: From January to May 2024, nationwide real estate development investment amounted to 4.0632 trillion yuan, a year-on-year decrease of 10.1%. Residential investment fell by 10.6% to 3.0824 trillion yuan.

Construction Metrics Show Sharp Declines

The total floor area under construction by real estate development enterprises was 688.896 million square meters, down 11.6% year-on-year. Residential construction area was 481.557 million square meters, down 12.2%.

New Housing Starts and Completions Drop

New housing starts covered 30.09 million square meters, down 24.2%, with residential new starts down 25% to 21.76 million square meters.

The completed housing area was 22.245 million square meters, down 20.1% and residential completions were down 19.8% to 16.199 million square meters.

Significant Decline in Sales Metrics

The sales area of new commercial housing totaled 36.642 million square meters, a 20.3% decrease from the previous year, and the residential sales area was down 23.6%.

Revenue from Sales Plummets

Sales revenue for new commercial housing was 3.5665 trillion yuan, down 27.9%, and residential sales revenue was down 30.5%.

Impact on Employment and Migration

These numbers indicate not only a significant reduction in real estate sales but also a drop in housing prices, as the decline in sales revenue outpaces the drop in sales area.

Job Losses in Construction and Related Sectors

The data also underscores a severe impact on employment: With construction areas declining, jobs in construction and related sectors have significantly decreased. This reduction in employment opportunities has forced many workers to leave urban areas and return to rural agricultural work, often resulting in increased poverty due to agriculture's low efficiency and profitability.

Despite efforts to boost the market, the data shows that the inventory of unsold homes has increased by 24% year-on-year.

Government's Optimistic Outlook

This indicates that the more the real estate market tries to sell, the more it struggles with excess inventory, leading to further price reductions.

Despite the dire data, the government remains optimistic. Liu Aihua, head of the Statistics Department, stated that the overall economic recovery in the first five months and the support from production demand and policy measures suggest that the economy will continue to improve.

Signs of Improvement Since Mid-May

She acknowledged some positive changes in the real estate market since mid-May, such as narrower declines in new housing sales and starts. However, she also admitted that the full effect of the policies would take time to materialize.

The State Council emphasized the need to implement existing policies effectively and continue to explore new measures to reduce inventory and stabilize the market.

Summary and Future Outlook

In summary, despite the government's optimism and policy measures, the real estate market faces significant challenges. The persistent decline in investment, construction, and sales, coupled with increasing inventory, suggests that the market has a long way to go before stabilization.

The future may see continued price reductions as the market seeks to balance supply and demand through "price-for-volume" strategies.

The following analysis will delve deeper into why this path of continuous price reduction seems inevitable for China's real estate market.