Real estate sector still has great room for exploration, development

Editor's Note:

The recently released communique from the Third Plenary Session of the 20th Communist Party of China (CPC) Central Committee laid out an unequivocal commitment to comprehensively deepening reform to advance Chinese modernization. As China prepares to implement further reforms aimed at promoting high-quality economic development, the global community is scrutinizing every aspect of the Chinese economy. Veteran property industry insider Yuan Yihong shared his observations on the evolvement of China's real estate sector, which is currently undergoing adjustments.

In recent years, China's real estate market has undergone adjustments, leading to increased attention on the problems and risks that have emerged following the market correction. 

However, the positive contributions of the real estate industry to the society's overall investment and the broad economy have often been downgraded. While it is crucial to address and mitigate risks hidden in the real estate sector, it is equally important to acknowledge and assess its role and contributions, objectively.

China's economy grew by 5 percent year-on-year in the first half of 2024, according to data provided by the National Bureau of Statistics (NBS) on July 15. This is a significant achievement for the country's post-pandemic economic recovery.

The real estate sector supply chain involves dozens of upstream and downstream industries. The real estate industry's driving force for ramping up investment, social consumption and economic growth is substantial, and the sector's contributions to the fiscal revenue cannot be ignored.

NBS data showed that, in the first six months this year, the proportion of real estate investment in fixed asset investment exceeded 21 percent. The sales revenue of newly built commercial apartments accounted for 20 percent of the country's total retail sales in the first half year.

Since the investment amount of a single industry accounts for more than 20 percent of the total fixed asset investment, it is undeniable that real estate is a pivotal industry for the macro economy.

In 2022 and 2023, the real estate market has experienced some corrections. However, the property taxes and land sale revenues still accounted for a large chunk of the country's overall budget revenues till today. The real estate-related loans also account for a big proportion of all bank loans in China's financial institutions.

Nevertheless, some people claim that the real estate industry is now "dragging down" China's economic growth. This perception stems from the fact that there have been overly high expectations placed on the real estate sector. 

For the past two decades, real estate has been a major driver of the country's economic growth, accelerating various industries and service sectors. 

It should be a prevailing belief that real estate's role in the overall industry chain should continue to expand, and any slowdown of the sector will be detrimental to overall growth. Therefore, labeling the real estate as a sector "dragging down" the economy is misleading and inaccurate.

The fundamentals of China's real estate sector remain solid. For example, last year's sales of newly built commercial housing reached 11.66 trillion yuan in sales value. We cannot say that this sale does not support the growth of other related industries, such as household appliances, building materials, cement, and steel.

Of course, if the real estate sector had not undergone such an adjustment, the industry could have made a greater contribution to the economic growth. 

As to precise positioning and development trend of the country's real estate sector, the just-concluded Third Plenary Session of the 20th Communist Party of China (CPC) Central Committee has made an important commitment to fostering a new development model for the real estate sector which will support the diverse needs of urban and rural residents for better housing in the country.

In the context of continuous urbanization, the real estate sector still has great room for exploration and development. Its position as an important industry is irreplaceable, though the development model needs to be improved.