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China Residential Market Report 2022

Xiaoduan Zhang • 17/03/2023
China Residential Market Report 2022
Investment in real estate development for the full year 2022 dropped 10.0% y-o-y to record RMB13.3 trillion, while residential investment alone fell 9.5% y-o-y to RMB10.1 trillion.
The loosened policies and funding environment seen in 2022 did not effectively boost the sluggish market activity and confidence remained lacking.
As a result, most developers held off on land acquisition and business expansion, and the drop off in real estate investment slowly deteriorated throughout the year. We expect the implementation of financial initiatives will help stabilize developers' cash flow. The optimization of the centralized land supply policy should also bring positive effects and help drive improvement in development investment.
The total area of new construction residential units fell 39.8% y-o-y in 2022 to record 881.4 million sq m, while the total area of completed residential units dropped 14.3% y-o-y to record 625.4 million sq m. Although the rate of decline in completed area has been quite marked, the full year performance figure is less severe than for the first three quarters.
With the continued promotion of the “Guaranteed Delivery of Pre-Sale New Homes” campaign across China, combined with the easing of financial policies to help ease developers’ capital flow, we expect to see a further moderating in the decline of total completed area.
A series of loosening policies were launched in 2022 in a bid to reduce risk and to destabilize the market. However, home buyers generally remained cautious, wary of the reoccurrences of COVID-19 and associated measures together with uncertain economic expectations, resulting in a rather weak demand side.
The total floor area of sold new residential units in 2022 was at 1.1 billion sq m, down 26.8% y-o-y. The drop for the full-year was 1.1 percentage points steeper than in the first three quarters.
Developers' willingness to offer home price discounts grew as market demand weakened, driving the average residential sales price down 2.0% y-o-y to record RMB10,185 per sq m, the first y-o-y decline seen since 2008. Considering that price cuts can provide a significant kickstart to recovery of market demand, we expect the average sale price in 2023 to maintain the downward trend.
Overall, easing policies will support a recovery of confidence, although such a recovery may be rather gradual in response to the deep market adjustments of previous years. Looking ahead, to achieve the goal of “promoting a smooth transition of the real estate industry to a new development model,” the number of easing policies is forecast to expand and to cover a wider range of private developers. The adjustment of the COVID-19 policy may also lead to an improvement in general expectations and to support the release of potential demand. These positive factors are expected to gradually stabilize China’s real estate market in 2023. 
However, the beneficial impact of supportive policies will take time to become apparent, and we still expect to see adjustments in the real estate industry in 2023. Considering that a rebound in market demand may be elusive without the stimulus effects of price cuts, we expect residential sales average prices to continue to decline in 2023.

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