China's housing market is in a state of perpetual stagnation, five years after the Evergrande crisis, according to Dr. Henry Hao of Commerzbank. This is a stark contrast to the vibrant, booming real estate sector that once fueled China's economic growth. The national housing prices have followed an L-shaped trajectory, with a K-shaped divergence between Tier-1 and lower-tier cities. This means that while some cities have seen a stabilization in prices, the overall market remains in a state of decline. The construction cycle has also been fractured, with housing starts plummeting to a mere 24% of their former levels, and real estate investment sitting at just 53% of its July 2021 peak. This structural stagnation is not just a result of weak demand and tighter funding, but also of demographic forces. The historic wave of rural to urban migration has effectively crested, and declining birth rates further shrink the pool of first-time buyers. This means that China is mirroring Spain's long digestion period rather than a rapid rebound, as was seen in other historical crises. The era of real estate as a primary growth engine is definitively over, and Beijing has shifted capital toward new productive forces, such as green technology, electric vehicles, and advanced industrial equipment. However, the structural downsizing is locked in by demographic forces, and Beijing's policies aim to manage the decline rather than spark a major rebound. In my opinion, this is a critical juncture for China's economy, as the country must now navigate the challenges of a shifting growth model. The transition to new sectors will be a complex and challenging process, but it is essential for China's long-term economic health. The question remains: will China be able to successfully pivot toward new growth drivers, or will the structural stagnation persist?
