China’s economic growth could drop below 3 per cent in 2024 if the real estate slowdown deepens, according to S&P Global Ratings, underscoring how the ongoing housing crisis remains a serious drag on the world’s second-largest economy. 

In a downside scenario, property sales in 2024 would decline up to 25 per cent from 2022, to about US$1.4 trillion. S&P estimates that this would shrink China’s real gross domestic product growth to 2.9 per cent that year. The rating agency sees a 20 per cent probability of it happening with Beijing providing no significant government stimulus to the sector, nor discretionary fiscal or monetary support. 

“Property pain is dragging on China’s economic rebound, which further hits property sales in a negative feedback loop,” said analyst Eunice Tan, head of credit research for Asia-Pacific at S&P Global Ratings.

Even as the latest economic data topped forecasts and put the government’s growth goal of about 5 per cent this year within reach, pessimism remains. The International Monetary Fund this month lowered its forecast for China’s growth in 2024 to 4.2 per cent due to serious headwinds from the real estate sector.

Real estate directly makes up around 13 per cent of China’s GDP, although S&P says its overall footprint is approximately twice as large. This creates a domino effect of problems in the financial system and local government fiscal profiles. 

Measures to encourage home purchases have so far done little to slow the slump. New-home prices in major cities fell at the fastest pace in almost a year in September. The value of output by the real sector as a whole contracted 2.7 per cent in the third quarter, the biggest quarterly drop this year, according to China’s statistics bureau.

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In S&P’s base-case scenario, property sales will decline between 10 per cent and 15 per cent in 2023 from the prior year, and shrink a further 5 per cent next year. China’s economic growth will decline to 4.4 per cent in that scenario, broadly in line with the 4.5 per cent median estimate in a recent Bloomberg survey. BLOOMBERG