Chinese property stocks buoyed by one child policy change

The surprise announcement that the Chinese authorities are scrapping the one child per family policy has buoyed property stocks in the country. The announcement was made late on Thursday and we saw an immediate reaction in stock prices. While there is no doubt that this move will have a long-term impact upon not only the economy but also the property market, what can we expect in the short to medium term?

Extension of a trial from 2013

Those who follow China carefully will be aware that the Chinese government relaxed the one child per family policy in 2013 resulting in a less than expected number of new birth registrations. The change in policy allowed more than 11 million couples the opportunity to have a second child although there are more factors to take into consideration. The scrapping of the policy altogether caught many by surprise and there is much intrigue and mystery as to how this will impact China in the longer term.

Chinese property market

It has been well documented in recent times that the Chinese real estate market is struggling with many investors looking overseas to so-called “safe havens” such as London. In response the authorities recently relaxed various restrictions on the type of properties that developers can build as well as tweaking monetary policy to assist financial markets. However, the impact of this potentially monumental change in child numbers could take some time to filter through because of the haze hanging over the troubled economy and the struggling property market.

Will families look for larger properties?

The early indications seem to be that larger properties will be required in the longer term and indeed the traditional responsibilities of Chinese grandparents is likely to come into play. Many Chinese families depend upon their grandparents for partial childcare which will ensure that more grandparents live with their children in the future. So, while it is unclear at this moment in time how long the change in the one child policy will take to work through the system it can only be positive in the longer term.

The short to medium term situation is not so clear due to a number of other factors which we have mentioned above.

Chinese demographics

Like so many countries around the world there will be a significant increase in the older population of China. Experts predict that the vital 25 to 49-year-old group of the population will peak in 2015 at around 586 million people. It is then predicted to decline from then onwards – at least until the one child policy change kicks in.

The ageing population across the country will likely lead to increased healthcare costs which will put pressure upon disposable household incomes. A reduction in disposable household incomes in the short to medium term, at least until the economy recovers, could see many families reluctant to increase their size. So, the change in the one child policy will have a significant positive impact in the longer term although the short to medium term situation is likely to be dictated by the economic situation and the property market. Why is nothing ever simple!

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