China’s property market, already struggling with a prolonged downturn, faces a fresh challenge from the contry’s declining population.

Goldman Sachs projects that demand for new homes in urban areas will remain subdued, perhaps falling below 5 million units annually in the coming years. This is a significant drop from the peak of 20 million units in 2017.

Economists at Goldman Sachs noted that “Falling population and slowing urbanization suggest decreasing demographic demand for housing.”

Tianchen Xu, a senior economist at Economist Intelligence Unit, anticipates the nation’s population will dip below 1.39 billion by 2035, down from 1.41 billion, citing World Bank data. This decline is attributed to a combination of falling birth rates and increased mortality due to an aging population.

government figures indicate that China’s population has been shrinking for the last three years, with 2024 data showing a decrease of 1.39 million from the previous year, driven by lower birth rates.

Goldman Sachs estimates that the shrinking population will reduce home demand by 0.5 million units each year in the 2020s, and by a larger 1.4 million units annually in the 2030s. This contrasts sharply with the 2010s, when a rising population contributed to an increase of 1.5 million units.

Even after Beijing relaxed its one-child policy in 2016 and introduced incentives for having children, the fertility rate has continued to decline. Factors such as stagnant incomes, job insecurity, and a weak social security system have discouraged young people from having more children.

Xu suggests that Beijing’s pro-natal policies are likely to have “limited effect” because they fail to address the underlying issues, such as the high cost of raising children, the tendency to delay marriage for career advancement, and “an embrace of individuality.”

“Falling population and slowing urbanization suggest decreasing demographic demand for housing.”

Steeper Slump

This demographic shift adds to the challenges facing the property market, which has been struggling as late 2020. Despite numerous government measures implemented since last September, there are few signs of betterment.

According to Larry Hu, chief China economist at Macquarie, new home prices in May fell at their fastest rate in seven months, continuing a two-year period of stagnation despite government intervention.

Hu noted that new home sales in 30 major cities fell by 11% year-on-year in the first half of this month, a worsening from the 3% drop in may.

Goldman Sachs anticipates that “Holders of investment properties are likely to be net sellers (to owner-occupiers) for the foreseeable future,” due to expectations of continued price declines.

While goldman Sachs expects China’s urbanization rate to slow in the coming years, impacting urban housing demand, william wu, a China property analyst at Daiwa Capital Markets, believes that the demographic drag on the property market is not yet “imminent” and may take decades to fully materialize.

In the short term, “some of this decline will be offset by continued urbanization, and housing upgrade demand,” Wu said, noting that the latter will account for a growing proportion of China’s total housing demand.