China’s real estate sector is currently experiencing a divergence in performance, facing challenges despite anticipated government support. According to a former advisor to the People’s Bank of China, Li Daokui, the recovery of the sector is unlikely to happen in the near future.

Li Daokui, who is now a professor of economics at Tsinghua University, stated that “the property market right now in China is actually two-fold. It’s actually going into two directions.”

Recent debt troubles faced by property giants Evergrande and Country Garden have greatly affected consumer confidence in real estate companies, leading to a rocky period for China’s property market. In July, China’s house prices experienced a decline of 0.1% year-on-year, after a brief recovery in May and a stagnant phase in June.

Li Daokui emphasized that the policy response from Beijing should be more decisive. However, he noted that many policy discussions are happening behind the scenes. He predicted that in the next two months, numerous policies will be implemented to stabilize the finances of major property developers and dispel any financial panic.

Li Daokui highlighted the non-uniform nature of China’s property market slowdown. He stated, “In the largest cities, like Beijing and Shanghai, good properties and relatively large apartments are being sold at a much faster pace than before.”

However, sales are declining in the third- and fourth-tier cities. Li Daokui explained that while there is still ample liquidity among high-income individuals, those earning a moderate salary are more hesitant to make purchases. He expects property sales to recover in the next six to 12 months in these lower-tier cities, especially for smaller apartments. Therefore, there will be a few more months of recovery for the overall property market.

To support the housing market, Beijing has recently taken measures such as reducing loan interest rates and easing purchase and sale restrictions.

On Wednesday, China’s state-owned Securities Times published a commentary urging the removal of policies that restrict property purchases in cities beyond the top tier. The commentary argued that these policies, initially implemented to curb speculation, are no longer appropriate given the changing demand-supply dynamics in the property market. It emphasized the need for increased policy support to boost sales and release suppressed demand caused by rigid housing policies.