Chinese population decline hurts its real estate market

The Chinese real estate sector has been struggling with a deepening decline for years. Now a shrinking population is throwing another shadow on the stagnant real estate market.

Goldman Sachs estimates that the demand for new homes in Chinese urban cities will remain suppressed at less than 5 million units a year in the coming years – a quarter of the 20 million units in 2017.

“The falling population and the delay in urbanization suggest a decrease in demographic demand for housing in the coming years,” Goldman Sachs Economists said in a note in a note.

The country’s population is thought to fall to less than 1.39 billion by 2035 from 1.41 billion, according to the latest World Bank dataTianhen Sue, a senior economist in the Economy Intelligence Division, said, citing a combination of less newborns and more deaths from an aging population.

China’s population has declined in the last three years, with the most government data for 2024. showing that it fell by 1.39 million from the previous year, as the birth rate drops.

The shrinking population will cripple the demand for housing with 0.5 million units each year in the 2020s and will lead to a greater recess of 1.4 million units a year in the 2030s, the Goldman Sachs estimates, compared to the positive contribution of 1.5 million units in 2010, when the population is increasing.

The fertility rate in the country continues to fall Even after Beijing relieved his policy for a child in 2016, and despite Beijing’s efforts to stimulate childhood wearing through monetary incentives. The stagnant income, the instability of the prospects for work and the poor social security system have discouraged Chinese young people to have more babies.

Beijing’s prodigical policies are likely to have a “limited effect” as they are not dealing with deeply rooted problems, SU said, as high economic costs of childbirth and people’s tendency to delay the marriage of career progression and a “hug of individuality.”

Emphasizing the declining birth rate, nearly 36,000 kindergartens across the country have closed in the last two years, with the number of students in pre -school schools fell by over 10 million. This is according to the CNBC’s calculation of the official Data publishes the Ministry of EducationS In the same way, Elementary schools It dropped by nearly 13,000 between 2022 and 2024.

This is torn through the housing markets that once saw high prices on the back of the strong demand for better public schools.

The powerful premium was once fueled by access to elite schools and expectations for growing property values. But with the shrinking population and the local authorities who scathing the registration policies based in the area, the added value of these homes has begun to decrease, according to William Wu, a Chinese real estate analyzer Daiwa Capital Markets.

The mother of a 7-year-old boy in Beijing told CNBC that the price of her apartment had fallen by about 20% more than two years ago when she bought it. It cost her approximately twice the average price for an apartment in the city so that her son could visit a good elementary school.

The number of children entering the primary school in 2023 reached the highest level of more than two decades, according to wind information, before dropping out in 2024, the year in which her son enrolled.

This demographic change is an additional overhang on the real estate market that is struggling to get out of a painful decline since the late 2020 Central and local measures Since last September, the decline in real estate has shown a small sign of retreat.

The new home prices fell at their fastest pace for seven months in May, according to Larry Hu, China’s chief economist in Macquarie, prolonging two-year stagnation, despite government efforts aimed at arresting the decline.

New housing sales in 30 major cities fell 11% a year in the first half of this month, worsening a 3% decrease in May, Hu said.

“Investment property holders are likely to be net sellers (of a bacon owners) in the foreseeable future,” housing prices will continue to fall over, Goldman Sachs estimates.

While Goldman expects China’s growth to be hardened in the coming years, injuring the demand for urban housing, Wu said that demographic drag on the real estate market is not “inevitable” and can take decades to play.

Within the close period, “part of this decline will be offset by prolonged urbanization and demand for housing,” Wu said, as the latter would take into account the increasing share of the overall demand for housing in China.

– Evelyn Chen from CNBC contributed to this story.