The ongoing recession in the real estate sector over the past three years has led to widespread financial insecurity, 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, the eastern Chinese city known for its tech scene and picturesque West Lake.
In 2022, they invested their savings in another apartment that they hoped to rent out or resell. Instead, the 960-square-foot apartment sits empty because housing prices have fallen. 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’re not alone. With 70 percent of family assets in China tied up in real estate, every 5 percent drop in prices could wipe out as much as $2.7 trillion in wealth, Bloomberg Economics estimates.
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The property crisis is one of the biggest challenges for 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 property crisis, which is at the heart of China’s broader economic slowdown. Fearful of losing money on their biggest assets, people are shying away from spending in general, further straining the world’s second-largest economy.
Official figures this week showed China’s economy grew by just 0.7 percent in the second quarter of this year well below expectations, bringing annual growth to a relatively low 4.7 percent.
However, analysts say measures to help the property market are unlikely to play a prominent role in plans to boost growth at a major Chinese Communist Party meeting in Beijing this week.
The Communist Party Central Committee this week holds its “Third Plenum,” an economic meeting held about every five years that is used to promote sweeping reforms.
In 1978, Deng Xiaoping, the strongman leader of the time, used that year’s plenary debate to build consensus on his “reform and opening up” policy, which brought about rapid growth for decades.
Analysts say using this year’s plenary session to announce strong support for the housing market would be one of the quickest ways to restore consumer confidence and stimulate an economy struggling with chronically low demand.
“The most effective way to stimulate the economy is through support for the real estate sector,” said Gavekal Dragonomics, a research firm. Even if officials are eventually forced to do more, “they do not seem eager to take action now,” the analysts wrote in a note Monday.
Xi has so far taken a cautious approach to reviving the ailing property market, avoiding drastic measures to revive economic activity or directly support consumers — something liberal economists believe is the fastest way to boost growth.
Instead, the government has taken incremental steps to restore confidence without triggering a new cycle of bad debt. In May, officials promised easier access to mortgages, introduced an “old-for-new” home swap program and led a drive to buy up unfinished developments and convert them into affordable housing.
“They’ve tried everything — 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 largest cities continued to fall in June, down 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 property purchases by non-residents were lifted in December, but this has done little to improve prices.
“Those who are buying houses today are all people who really need them,” said Teng Lai, a real estate agent from Foshan. No one is buying as an investment and even those who buy out of necessity “are waiting to see if prices are cheaper tomorrow,” he said.
Rather than address this, Xi prefers long-term plans to transform China into a “science and technology superpower” by focusing on emerging technologies such as artificial intelligence and advanced manufacturing of goods like solar panels, electric vehicles and lithium-ion batteries.
But public perceptions of inequality are becoming increasingly clear. People’s faith in hard work has eroded, while their concern about systemic injustices is growing, a recent survey found.
When asked in 2009 or 2014, most people in China ranked their own lack of effort or ability as one of the biggest obstacles to becoming rich. But by 2023, the most cited reason for being poor was unequal opportunity, with an unfair economic system coming 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 consume 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 outcome of a sense of inequality is a slowing economy.”
Real estate may be “central to national strength and people’s livelihoods,” but authorities face a delicate balance between managing debt risk and making housing more affordable, said Liu Jiayan, an associate professor of urban-rural planning at Tsinghua University. “Just because it’s important doesn’t mean large-scale policy measures should be taken immediately to protect the market.”
During 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 residents now live in urban areas. Rising inner-city home values have helped create a wealthy, aspirational and upwardly mobile middle class.
That rapid expansion came to an abrupt halt in 2021 when a series of defaults by indebted developers plunged the market into crisis. Prices and demand plummeted. Tens of millions of apartments now sit empty. Millions more unfinished units, often sold before construction began, face delays as cash-strapped developers fail to pay builders.
Among those hardest hit by the fallout are people who have invested in the sector in recent years, such as Clara Liu and her husband.
“All those people who entered the sector late are now faced with prices that are much lower than when they bought,” García-Herrero said.
With so many new apartments still unfinished or empty, some residents in prime cities like Beijing, Shanghai and Guangzhou are getting creative. They’re increasingly looking to older — and cheaper — buildings that they might have previously shunned in favor of new construction.
Zheng Zhaoping, a 29-year-old marketing manager at a cosmetics company in Guangzhou, bought a two-bedroom house on the top floor of a four-story apartment built in 1995 in April. The asking price had dropped by $55,000 in six months, making her think she had gotten a bargain.
“Many people think this is not a good time to buy” because of investment risks from ever-changing policies, Zheng said. But “I believe prices in tier-1 cities like Guangzhou and Shenzhen will be relatively stable.”