Chinese homebuyers look at housing models of a residential property project during a real estate fair in Shanghai, China, May 2, 2015. [Photo / IC]

China's real estate sector, sometimes considered the world's "most important" sector in terms of its impact on the global economy, is in flux again. After a pronounced fall in 2014, housing sales have been on the rise since early 2015, largely because of policy support－including an easing of house purchase restrictions, lower interest rates and rapid credit growth. As always, the recovery in housing sales has caused prices to pick up again.

The recovery in sales was to be expected, given the significant relaxation of policy and the presence of some pent-up demand. What is more surprising to us (at Oxford Economics) is that housing starts and construction picked up early this year. We had not expected this because, in our view, the incentives for new construction are still weak given the large inventories of unsold housing.

The uptick in construction has had major economic impacts. Within China, it seems to be a key reason behind the tentative bottoming out of the overall growth momentum recently. Internationally, the recovery in China's real estate sector, and in its economy more generally, has been a key driver of the recent recovery in raw commodity prices and commodity-related asset prices, including currencies of commodity-exporting countries.

Nonetheless, we remain skeptical whether the pick-up in construction can be sustained, given the still high inventories of unsold housing, as a share of sales. The ratio of inventories of housing on which construction has started but are unsold, as a share of sales, declined through 2007, but then rose to reach the equivalent of two years of sales in 2014. It fell somewhat last year but remains high. National Bureau of Statistics' data on the stock of housing "waiting for sale" only include inventories that are (officially) completed. But they tell a broadly similar story.