A prolonged downturn in the real estate sector over the past three years has created economic anxiety, especially among the middle class.
“It’s a painful lesson,” said Clara Liu, a 36-year-old civil servant who lives with her husband in Hangzhou, a city in eastern China known for its technology industry and picturesque West Lake.
In 2022, they put their savings into another apartment with the idea of renting it out or flipping it. But with housing prices plummeting, the 960-square-foot apartment remains empty — unable to find a buyer without taking a big loss.
“I will never consider buying a house as an investment again,” Liu said.
They’re not alone: 70% of Chinese household wealth is stored in real estate, and every 5% fall in prices could wipe out as much as $2.7 trillion in wealth, Bloomberg Economics predicts. Estimate.
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The real estate crisis is one of the biggest challenges facing leaders Xi JinpingThe plan promises to give ordinary people a “real sense of the benefits”. In recent weeks, President Xi has spoken about the need for “practical measures that benefit people’s lives and warm people’s hearts”.
But many are feeling the chill from the real estate crisis that is at the heart of China’s overall economic slowdown. Fearing losing their biggest asset, people are generally cutting back on spending, further dragging down the world’s second-largest economy.
Official figures this week showed China’s economy grew by just 0.7%. Economic growth in the second quarter of this year was well below expectations, with annual growth coming in at a relatively low 4.7%.
But analysts said measures to support the property market were unlikely to feature prominently in plans to shore up growth at a key Communist Party meeting in Beijing this week.
The Communist Party of China’s Central Committee is holding its “Third Plenary Session” this week, an economic conference held roughly every five years that has been used to push through major reforms.
In 1978, then-autocratic leader Deng Xiaoping forged a consensus at that year’s National People’s Congress on the “Reform and Opening Up” policies that led to decades of rapid growth.
Analysts say announcing strong support for the property market at this year’s meeting would be one of the quickest ways to restore consumer confidence and stimulate an economy suffering from chronically weak demand.
“The most effective way to stimulate the economy would be to support the real estate sector,” research firm Gavekal Dragonomics said. Even if authorities are ultimately forced to take further measures, “they appear unwilling to act at present,” the analysts wrote in a Monday note.
Mr. Xi has so far been cautious about reviving the ailing property market, avoiding drastic measures to jump-start economic activity or provide direct aid to consumers, which liberal economists see as the quickest way to jump-start growth.
Instead, the government has taken piecemeal steps to restore confidence without sparking a new cycle of bad loans. In May, officials promised to make mortgages easier to get, introduced a “trade-in” program and led an effort to buy up unfinished developments and turn them into affordable housing.
“Frankly, they’ve tried everything,” said Alicia Garcia Herrero, chief Asia-Pacific economist at French investment bank Natixis. “The sector is just too bloated. It’s too big.”
None of this made a noticeable difference: New home prices in China’s 70 biggest cities continued to fall in June, down a further 0.67 percent from May, according to official figures.
Take Foshan, a city of 9 million people near the manufacturing hub of Guangzhou, where restrictions on nonresidents buying property were lifted in December but have had little effect on raising prices.
“Everyone buying a house today is someone who really needs it,” said Teng Lai, a real estate agent in Foshan. No one is buying as an investment, and even those buying out of necessity are “waiting to see if prices will be cheaper tomorrow,” he said.
Instead of addressing this issue, Xi Jinping has endorsed a long-term plan to make China a “science and technology powerhouse,” focusing on emerging technologies such as artificial intelligence and advanced manufacturing of products such as: Solar panels, electric vehicles, lithium-ion batteries.
But public perceptions of inequality are becoming more pronounced: Recent surveys show people have less faith in hard work and more concern about systemic injustice.
When asked in 2009 and 2014, most Chinese people cited a lack of their own effort or ability as the biggest obstacle to becoming wealthy. But in 2023, inequality of opportunity was the most frequently cited reason for poverty, with an unfair economic system coming in third, the pollster said. the study The study was written by retired Harvard sociologist Martin White and Stanford economist Scott Rozelle.
“The more anxious people are about the future, the more likely they are to spend less and invest less in new businesses,” experts at the Center for Strategic and International Studies wrote about the study last week. “Thus, the most likely outcome of perceptions of inequality is an economic slowdown.”
Real estate may be “central to the nation’s strength and people’s livelihood,” but authorities must strike a delicate balance between managing debt risks and lowering home prices, said Liu Jiayan, an associate professor of urban and rural planning at Tsinghua University. “Just because real estate is important doesn’t mean we need to immediately take major policies to protect the market.”
During Deng Xiaoping’s time, Chinese society was transformed by urbanization and a surge in home building and purchases.
In 1990, only about a quarter of Chinese people lived in cities; today, two-thirds of China’s 1.4 billion people live in cities. Rising housing prices in urban areas have helped create an affluent, ambitious and upwardly mobile middle class.
That rapid expansion came to a screeching halt in 2021 after a series of defaults by debt-laden developers. plunged the market into crisisPrices and demand have plummeted. Tens of millions of apartments now lie empty. Millions more unfinished apartments, often sold before construction has even begun, face delays as cash-strapped developers are unable to pay builders.
Those hit hardest in the aftermath are those who entered the field in more recent years, like Clara Liu and her husband.
“All the late entrants into this field are facing prices that are much lower than when they bought,” Garcia Herrero said.
With many new apartments sitting unfinished or vacant, some residents in first-tier cities such as Beijing, Shanghai and Guangzhou are getting inventive, turning to older, cheaper properties that they previously shunned in favor of new builds.
In April, Zheng Zhaoping, 29, a marketing manager at a cosmetics company in Guangzhou, bought a two-bedroom unit on the top floor of a four-story, stepped apartment building built in 1995. The asking price had dropped by $55,000 in six months, and she thought she got a bargain.
“Many people think now is not a good time to buy because of the investment risks arising from constantly changing policies,” Zheng said, but “I believe prices in first-tier cities like Guangzhou and Shenzhen will remain relatively stable.”
