China is still facing a real estate crisis and its government has a lot of work to do to fix the problems, the International Monetary Fund (IMF) said on Friday, according to a report on Beijing Bulletin.

The cash-strapped property sector, which accounts for a quarter of the Chinese economy, has struggled with defaults and stalled projects, hitting market confidence and dragging down growth in the world’s second-largest economy.

IMF economists welcomed recent measures by the country’s authorities to ease restrictions on financing for the sector but pointed out that “additional action” will be needed in order to end the real estate crisis.

“If you look at the measures, a lot of them address financing issues for the developers that are still in relatively good financial health, so that will help,” deputy director in the IMF’s Asia Pacific Department, Thomas Helbling, told CNBC.

However, property developers are still facing “severe” difficulties, he noted, adding that “the issue of the large stock of unfinished housing more broadly is not yet addressed.”

The Covid-19 pandemic has seriously affected the housing market, causing financial difficulties resulting in a slowdown in construction in the country where apartments are typically pre-sold to consumers. Last year, some home buyers even halted their mortgage payments in protest.

Chinese authorities subsequently emphasized the need to help developers finish building those pre-sold apartments. Still, residential floor space sold in China slumped by almost 27% last year, while real estate investment dropped by 10%, according to official numbers.

Now Beijing has to figure out how restructuring can be achieved, and who will absorb the losses, Helbling said.

“Otherwise, the sector will continue to slump and remain a risk and also constrain households that are overexposed to the property sector, and will have cash tied up and their savings tied up, which will be a handicap for the broader economic recovery,” he added.

China’s medium-term forecast lowered

The International Monetary Fund (IMF) has slashed its medium-term growth forecast for China but raised its forecast for the world’s second-largest economy through 2023. This underscores ongoing economic challenges despite Beijing’s recent shift to pro-growth policies, the Wall Street Journal reported.

According to the IMF’s latest assessment of China’s economy in its Article IV consultation report released on Friday (Feb. 3), the group now expects China’s annual growth rate to be 3.8% in five years’ time, down from the fund’s forecast last October. 4.6%.

Earlier this week, the IMF raised its growth forecast for China this year by 0.8 percentage points to 5.2%, citing a faster-than-expected lifting of strict virus restrictions and hopes for a recovery in personal consumption.

China’s economy grew by 3% last year, one of the slowest rates in decades, official Chinese data show. The IMF’s downgrade of China’s medium-term growth outlook reflects the combined impact of a shrinking population and slower productivity growth.

• From Various Sources