Property investment in China experienced a nearly 8% decline in the first half of this year, according to official data released on Monday. This drop reflects the ongoing challenges faced by the sector, which accounts for up to a quarter of the world’s second-largest economy.

The National Bureau of Statistics stated that the property sector will gradually stabilize as the broader economy recovers. It is transitioning from high-speed development to more stable development in the medium to long term.

The Chinese property market has been struggling to recover from a credit crisis triggered by government measures to control debt levels in August 2020. The years of rapid growth have led to the creation of “ghost towns,” where supply exceeds demand, as developers seek to capitalize on the desire for homeownership and property investment.

The 7.9% decline in property investment from January to June was steeper than the 7.2% decline reported from January to May. Last month, China’s second-largest developer, China Vanke, acknowledged that the sector is currently under pressure, with the situation being worse than expected.

“This year, due to major drag from the housing markets and consumption, we actually didn’t see the kind of rebound in broader economic growth,” said Dan Wang, chief economist at Hang Seng Bank (China). China’s second-quarter growth came in at 6.3% compared to the previous year and 0.8% compared to the previous quarter, falling short of market expectations once again.

“Of course, it justifies a little bit bigger fiscal and monetary stimulus, but if you look at the whole year, even with 6.3% growth in Q2, we can still reach 5% annual growth without a big problem,” she added.

Wang noted that if the decline in housing investment does not worsen, fixed asset investment would contribute around 1% to 1.5% of annual growth overall. A “natural rebound in consumption” would contribute about 2% to 2.5%, she said.

“The overall picture is kind of rosy. It’s not difficult to reach the annual target, so there’s not much incentive for the central government to extend the stimulus,” Wang said.

In addition to the decline in property investment, data released on Monday also showed a 24.3% decrease in new housing starts and an almost 19% rise in completed housing stock in the first half of the year compared to the previous year.

The property sector has been heavily impacted by a persistent credit crisis over the past two years, resulting in numerous incomplete housing projects due to cash-strapped developers. This has led some buyers to halt mortgage payments.

The broader economic slowdown has also prompted many individuals to save their capital instead of making housing purchases or investments.

Last week, the People’s Bank of China and National Financial Regulatory Administration extended loan relief for certain developers, emphasizing their commitment to ensuring the completion of ongoing construction projects. This suggests that more targeted support measures may be implemented in the future.

“To counteract persistent growth headwinds (property slowdown and confidence deficit in particular), we expect more (targeted) easing measures in the coming months, with a focus on fiscal, housing, and consumption, although the magnitude of stimulus should be smaller than in previous easing cycles,” Goldman Sachs economists stated in a note following the data release.

Market observers are eagerly awaiting the Politburo’s meeting later this month, which traditionally assesses the country’s economic performance for the year. This meeting may provide further insight into policy stimulus. Chinese leaders have recently signaled their intention to implement judicious and targeted policy support.