A prolonged slump in the property sector over the past three years has sparked widespread financial insecurity among the middle class in particular.
“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 picturesque West Lake.
In 2022, they invested their savings in another apartment they hoped to rent out or resell. Instead, the 960-square-foot apartment sits empty as house prices have plummeted. They can’t find a buyer without taking a huge loss.
“I will never consider buying a house as an investment again,” Liu said.
They are not alone. With 70 percent of family assets in China stored in property, every 5 percent decline in prices could destroy as much as $2.7 trillion in wealth, Bloomberg Economics has estimated.
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The real estate crisis is the one of the biggest challenges facing leader Xi Jinping, who has promised to deliver a “sense of gain” for everyday people. Xi has spoken in recent weeks about the need for “practical steps that benefit people’s livelihoods and warm people’s hearts.”
But many people are feeling the chill of the real estate crisis, which is at the center of China’s wider economic slowdown. As people fear losing money on their biggest asset, they’re shying away from spending generally, further depressing the world’s second largest economy.
Official figures this week showed China’s economy grew only 0.7 percent in the second quarter of this year, well below expectations, putting annual growth at a relatively low 4.7 percent.
But measures to help the property market are unlikely to feature prominently in plans to shore up growth at a major Chinese Communist Party meeting in Beijing this week, analysts said.
The Central Committee of the Communist Party is this week holding its “Third Plenum,” an economic meeting held roughly every five years that has been used to promote momentous reforms.
In 1978, Deng Xiaoping, the strongman leader of the time, used that year’s plenum to build consensus around his “reform and opening” policy, which unleashed rapid growth for decades.
Using this year’s plenum to announce robust support for the property market would be among the fastest 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 to 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 right now,” its analysts wrote in a note on Monday.
Xi has so far taken a cautious approach to reviving the ailing property market. He has shunned drastic measures to jump-start economic activity or to provide direct support for consumers — something liberal economists believe is the quickest way to boost growth.
Instead the government has been using piecemeal measures to try to restore confidence without setting off another cycle of bad debt. In May, officials promised easier access to mortgages, introduced an “old-for-new” housing trade-in program, and led an effort to buy up unfinished developments and turn them into affordable housing.
“They’ve tried it all — to be frank,” 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 an appreciable difference. New-home prices in China’s 70 largest cities continued to decline in June, falling another 0.67 percent from May, according to official figures.
Take the case of Foshan, a city of 9 million near the manufacturing metropolis of Guangzhou. Restrictions on nonresidents buying property there were removed in December, but this 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 watching to see if prices will be 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 like artificial intelligence and advanced manufacturing of goods like solar panels, electric vehicles and lithium-ion batteries.
But public perceptions of inequality are becoming more pronounced. People’s faith in hard work has faded while their concern about systemic injustices rises, a recent survey found.
When asked in 2009 or 2014, most people in China considered their own lack of effort or ability among the foremost obstacles to becoming wealthy. But in 2023, the most cited reason for being poor was unequal opportunity, while an unfair economic system was cited 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 of its future is less likely to engage in consumption or invest in new business,” 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 inequity is a slowing economy.”
Property may be “central to national strength and people’s livelihoods,” 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 needs to be immediate large-scale policies to protect the market.”
In the Deng era, urbanization and the rush to build and buy homes transformed Chinese society.
Only about a quarter of Chinese people lived in cities in 1990, whereas two-thirds of the county’s 1.4 billion residents live in urban areas today. The soaring value of inner-city housing helped create a moneyed, ambitious and upwardly mobile middle class.
That rapid expansion came to a crashing halt in 2021, when a series of defaults by indebted developers plunged the market into crisis. Prices and demand collapsed. Tens of millions of apartments now stand empty. Millions more unfinished apartments, often sold before construction began, are facing delays because cash-strapped developers cannot pay builders.
Among those hardest hit by the fallout are people who bought into the sector in recent years, like Clara Liu and her husband.
“All of those people who got into the sector late in the game are now facing prices much lower than when they bought,” said García-Herrero.
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 had previously shunned in favor of new builds.
Zheng Zhaoping, a 29-year-old marketing manager at a cosmetic company in Guangzhou, in April bought a two-bedroom on the top floor of a four-story walk-up built in 1995. The asking price had fallen by $55,000 in six months, leading her to believe she was getting a bargain.
“Lots of people think now is not a good time to buy” because of investment risks from ever-changing policy, Zheng said. But “I believe the prices in first-tier cities like Guangzhou and Shenzhen will be relatively stable.”
