China Housing Demand to Stay at 75% Below Peak, Goldman Says

Goldman Sachs projects China's new home demand will remain 75% below its 2017 peak due to declining population growth and urbanization. Analysts cite expectations of price declines leading to decreased investment interest and potential for negative investment demand as owners sell vacant properties, further impacting the housing market.

Analysis

Goldman Sachs Group Inc. forecasts a substantial and sustained contraction in China's urban new home demand, projecting it to remain 75% below its 2017 peak in the forthcoming years. This outlook is primarily driven by adverse demographic trends, including a declining population and slowing urbanization, which are expected to significantly reduce organic demand for housing. Compounding this, Goldman Sachs analysts anticipate that expectations of continued price declines will negatively impact investment interest, potentially leading to a scenario where investment demand turns negative as existing owners offload vacant properties. This signals a structural, rather than cyclical, downturn for a critical sector of the Chinese economy.

Key Decisions for Investors

• Investors should exercise significant caution with direct investments in Chinese residential real estate and consider underweighting assets with high exposure to this sector.
• Closely monitor Chinese demographic data, urbanization rates, and property price indices for any deviation from the projected prolonged downturn, as these are key drivers of the forecast.
• Evaluate potential second-order effects on global industries reliant on Chinese construction activity and consumer wealth tied to property, such as commodities and luxury goods.