A prolonged downturn in the property sector over the past three years has caused widespread financial insecurity, particularly 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, the eastern Chinese city famous for its tech scene and scenic West Lake.
In 2022, they invested their savings in another apartment that they hoped to rent out or resell. Instead, the 960 square meter apartment is empty as house prices have fallen. They cannot find a buyer without taking a huge loss.
“I will never again consider buying a house as an investment,” Liu said.
They are not alone. With 70 percent of household assets in China stored in property, any 5 percent drop in prices could wipe out as much as $2.7 trillion in wealth, Bloomberg Economics has estimated.
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The real estate crisis is one of the biggest challenges facing leader Xi Jinping, who has promised to deliver a “sense of profit” to ordinary people. Xi has spoken in recent weeks of the need for “practical steps that benefit people’s livelihoods and warm people’s hearts”.
But many are feeling the chill of the real estate crisis, which is at the heart of China’s broader economic slowdown. As people fear losing money on their biggest asset, they are shying away from spending in general, further depressing the world’s second-largest economy.
Official figures this week showed China’s economy grew just 0.7 percent in the second quarter of this year, well below expectations, placing annual growth at a relatively low level of 4.7 percent.
But measures to help the property market are unlikely to feature prominently in plans to support growth at a major meeting of the Chinese Communist Party in Beijing this week, analysts said.
The Communist Party’s Central Committee is holding its “Third Plenum” this week, an economic meeting held roughly every five years that has been used to promote important reforms.
In 1978, Deng Xiaoping, the strongman leader of the time, used that year’s plenum to build consensus around his policy of “reform and opening up,” which produced rapid growth for decades.
Using this year’s plenum to announce strong support for the property market would be among the quickest ways to restore consumer confidence and stimulate an economy suffering from chronically depressed demand, analysts say.
“The most effective way to stimulate the economy is through support for the property sector,” according to Gavekal Dragonomics, a research firm. Even if officials are forced to do more eventually, they “do not seem eager to act now,” its analysts wrote in a note on Monday.
Xi has so far taken a cautious approach to reviving the battered property market. He has avoided drastic measures to stimulate economic activity or provide direct support to consumers – something liberal economists believe is the fastest way to boost growth.
Instead, the government has used piecemeal measures to try to restore confidence without starting another cycle of bad debt. In May, officials promised easier access to mortgages, introduced an “old-for-new” housing trade program and spearheaded an effort to buy unfinished developments and turn them into affordable housing.
“They’ve tried it all – to be honest,” said Alicia García-Herrero, chief economist for Asia Pacific at Natixis, a French investment bank. “It’s just a bloated sector. It’s too big.”
None of this has made a noticeable difference. New home prices in China’s 70 biggest cities continued to fall in June, falling 0.67 percent from May, according to official figures.
Take the case of Foshan, a city of 9 million people near the manufacturing metropolis of Guangzhou. Restrictions on non-residents buying property there were lifted in December, but that has done little to improve prices.
“Those who buy houses today are all people who really need them,” said Teng Lai, a real estate agent from Foshan. No one buys as an investment, and even those who buy out of necessity “are waiting and seeing if prices are cheaper tomorrow,” he said.
Instead of addressing this, Xi favors long-term plans to turn China into a “science and technology superpower” by focusing on emerging technologies such as artificial intelligence and advanced manufacturing of goods such as solar panels, electric vehicles and lithium-ion batteries. ion.
But public perceptions of inequality are becoming more pronounced. People’s faith in hard work has waned as their concern about systemic injustices grows, a recent poll found.
When asked in 2009 or 2014, most people in China considered their lack of effort or ability to be among the main obstacles to becoming rich. But in 2023, the most-cited reason for being poor was unequal opportunity, while an unfair economic system came in third, according to research by Martin Whyte, a retired Harvard University sociologist, and Scott Rozelle, an economist. at Stanford University.
“A public that is more uncertain about its future is less likely to engage in consumption or invest in new businesses,” experts at the Center for Strategic and International Studies wrote about the research last week. “And so the most likely consequence of a sense of inequality is a slowdown in the economy.”
Property may be “central to national strength and people’s livelihood,” but authorities face a delicate balance between managing debt risk and making homes more affordable, said Liu Jiayan, an associate professor of urban-rural planning at Tsinghua University. “Just because it’s important doesn’t mean there should be immediate large-scale policies to protect the market.”
In the Deng era, urbanization and the rush to build and buy houses transformed Chinese society.
Only about a quarter of Chinese lived in cities in 1990, while two-thirds of the county’s 1.4 billion people live in urban areas today. Rising housing values in the inner city helped create a moneyed, ambitious and mobile middle class.
This rapid expansion came to a halt in 2021, when a series of defaults by indebted developers plunged the market into crisis. Prices and demand fell. Tens of millions of apartments are now empty. Millions more unfinished apartments, often sold before construction begins, are facing delays because cash-strapped developers can’t pay builders.
Among those hardest hit by the fallout are people who bought into the sector in recent years, such as Clara Liu and her husband.
“All those people who entered the sector late in the game are now facing much lower prices than when they bought,” García-Herrero said.
With so many new apartments unfinished or empty, some residents in first-tier cities like Beijing, Shanghai and Guangzhou are getting creative. They are increasingly looking at older – and cheaper – buildings that were previously shunned in favor of new buildings.
Zheng Zhaoping, a 29-year-old marketing manager at a cosmetics company in Guangzhou, in April bought a two-bedroom on the top floor of a four-story building built in 1995. The asking price had dropped by $55,000 in six month, leading him to believe he was getting a bargain.
“Many people think now is not a good time to buy” because of investment risks from ever-changing politics, Zheng said. But “I believe prices in first-tier cities like Guangzhou and Shenzhen will be relatively stable.”