Real estate reforms: What do they mean for China?

By Tuba Ongun

China’s recent real estate reforms are shaping a new landscape for the country’s housing market, focusing on stabilizing prices, fostering urbanization, and addressing financial risks.

The reforms are also seen as part of a larger strategy to balance short-term economic pressures with long-term structural changes.

Speaking exclusively to Anadolu, Ding Yifan, a senior fellow at the Taihe Institute, said the reforms reflect China's commitment to long-term urbanization while addressing the immediate concerns of market volatility.

"The primary objectives of China’s recent real estate reforms focus on long-term urbanization needs, but these measures will also have short-term effects on financial market fluctuations,” Ding explained.

He highlighted that following the COVID-19 pandemic, China's real estate market faced a sharp decline, which fueled uncertainty.

Noting that this uncertainty impacted consumer confidence and, by extension, China’s economic growth, Ding said the reforms are stabilizing the market, which will help restore economic momentum.

One of the key components of the reforms is a shift in how land is supplied across cities and rural areas, according to Ding.

This will make China's urbanization plan more balanced, harmonizing development between big cities and smaller towns, he added.

The reforms are also aimed at curbing speculation in the real estate market, with the ultimate goal of improving living conditions rather than allowing housing to be treated as a speculative asset, Ding said.

Ding further stressed that while real estate had been a significant driver of China’s economic growth, it is unlikely to play the same role in the future.

"The real estate sector was pushing China’s economy to the verge of a bubble, so even if these measures of reform can stabilize the market, it cannot be the main driving force of China’s economic growth in the near future," he said.

He suggested that future economic growth will need to come from other sectors such as renewable energy, electric vehicles and artificial intelligence.

Underlining that the reforms will help stabilize housing prices, especially in large cities and city clusters, Ding said the future of real estate prices in smaller cities will depend on how quickly rural populations move into urban centers.

"Whether farmers will move into cities faster or not might be a decisive factor for housing prices in smaller cities," he added.

- 'Smooth out disparities' and 'coordinate economic tools'

China expert Einar Tangen also highlighted the importance of these reforms in stabilizing China’s broader economy as the real estate sector has been 24%-30% of China’s GDP.

This heavy reliance on real estate has led to unsustainable price-to-income ratios, particularly in major cities, where median house prices can be as much as 30 times the median income, he told Anadolu.

"A healthy ratio is three to four times, but in places like Beijing and Shanghai, it can be as high as 30 times," Tangen said.

The government’s goal is stabilizing housing prices while allowing wage growth and inflation to gradually reduce the price-to-income gap, he said.

"The Chinese government is trying to smooth out disparities as it continues to pursue the goals mentioned above," Tangen added.

Pointing to the reforms' potential impact on local government financing, Tangen noted the reforms also encourage local governments to float bonds and sell off non-core assets, measures that would help them achieve more sustainable revenue streams.

Beyond the immediate impact on local government finances, he said that these reforms will reshape China’s broader economic policy.

The People’s Bank of China, for instance, is expected to play a key role in managing interest rates and liquidity to ensure the reforms are effective.

"China is doing its best to coordinate its economic tools," he noted, stressing that real estate is just one part of a larger interconnected strategy to stabilize the economy.

As for the future of China’s real estate market, Tangen said he expects to see more regulation and oversight to prevent the kind of speculative bubbles that have plagued the sector in the past.

"Once the current issues have been addressed, expect a stable market where supply and demand are more closely watched," he added.