An economist predicts that it may take over a decade to address China's property inventory overhang.

• According to Hao Hong, chief economist at GROW Investment Group, it would take approximately two years to clear the existing housing inventory in China at the current rate of sales, as stated on CNBC Thursday.
• It will likely take over a decade to clear the housing stock currently under construction, according to Hong.
• Since 2020, real estate developers in China have been facing a spiraling debt crisis, which has resulted in sluggish growth in home sales and prices. This is due to the deleveraging of the once-bloated real estate sector, which accounts for approximately one third of China's economic activities.

The property sector in China is facing a long-term correction, with the housing inventory overhang expected to take more than a decade to clear, according to Hao Hong, the chief economist and partner at GROW Investment Group.

According to Hong, if the sales rate continues at its current pace, it will take approximately two years to clear all the outstanding inventory in the market.

We have 6 million square meters under construction, and if we continue at this rate, it will take more than 10 years to clear all the housing under construction. Therefore, we're looking at multi years for correction.

Since 2020, real estate developers in China have been facing a spiraling debt crisis, which has led to sluggish growth in home sales and prices. This is due to the deleveraging of the once-bloated real estate sector, which accounts for about one third of China's economic activities.

The "three red lines" policy in China requires developers to control their debt relative to their cash flow, assets, and capital levels. Among the real estate developers in the mainland, property giants and have been among the more prominent casualties.

Hong stated that as the current situation stands, individuals must become accustomed to the notion that it may take an extended period to deplete all inventories. Simultaneously, it is crucial to identify new areas for economic expansion, rather than solely relying on the property sector and property investments for economic growth.

Several market experts did not anticipate the property correction to persist for such an extended period, as stated by him.

The property sector would typically recover from economic downturns within two or three quarters of finding the bottom, according to him.

According to Hong, the property sector has reached its peak, and the long cycle is beginning to decline. Since the market is not prepared for a long-term correction, which they are more accustomed to a quick rebound based on past experience, the market is caught off guard.

This lack of preparation is harming both the confidence and the market response.

Debt crisis

Although various support measures were implemented, the ongoing property issue negatively influenced consumer trust and had a ripple effect on the overall economy.

Fears of a deepening slowdown in the world's second-largest economy have prompted calls for more aggressive stimulus.

At the Central Economic Work Conference in December, China's leaders vowed to address risks associated with the property sector, local debt, and small and medium financial institutions, while also promoting the construction of affordable housing.

The leaders emphasized the importance of high-quality development at the meeting. They proposed a nine-point plan that included technological innovation in the industrial system, increasing domestic consumption, attracting high-level foreign investment, and revitalizing agriculture to ensure food security.

The People's Bank of China made available 350 billion yuan ($49 billion) in loans to policy banks through its pledged supplementary lending facility in December, as stated in a Tuesday announcement.

Since November 2022, there has been no monthly increase until now, when the Chinese government employed a tool to stimulate its economy during the Covid-19 pandemic, fueling anticipation that the central bank may be supporting infrastructure construction and the struggling housing market to drive growth.