Goldman Sachs raises estimate of property drag on China's economy

Why it matters: Property has long been the main store of wealth for Chinese households and a key revenue source for local governments, so a prolonged slump weighs on consumer spending and public finances. Beijing has been trying to stabilise the sector without restarting a construction boom. How the downturn ends matters for commodity exporters and companies around the world that depend on Chinese demand.

China's property downturn is now in its sixth year, and the contraction keeps exceeding expectations even after economists spent five years steadily lowering their forecasts, according to The Dark Side Of The Boom.

Goldman Sachs has raised its estimate of how much the property sector is dragging on Chinese growth. The bank says the collapse in construction, land sales and investment has been substantially deeper than anticipated.

Beijing's move away from presales, in which buyers pay for homes before they are built, may help protect homebuyers. But it also removes a vital source of financing for developers, which could extend the contraction well into the next decade.

The downturn is no longer just a construction problem. Falling household wealth and deteriorating local government finances are reinforcing an economy that is increasingly dependent on growth outside property.

Goldman expects the drag to fade gradually, though it says much of that improvement reflects property becoming a smaller part of China's economy rather than a convincing recovery in housing demand.