China’s once-sizzling real estate market has begun to cool

A year ago, business was booming for Liang Jiawei, a real estate salesman in Zhanjiang, a coastal city in southern China.

He was able to sell three apartments in one day without much effort. The apartments were fairly generic, Mr. Liang admitted, but the new complex — in an up-and-coming neighborhood not far from a high-speed train station — was enough to attract buyers.

Then came a sudden twist of fate. China’s real estate sector began to collapse under the weight of its huge debt. What was already proving to be the country’s worst housing market in years took another blow when a new strain of the coronavirus triggered widespread lockdowns and brought the economy to a halt.

The turmoil has led to a slump in new home sales and a fall in property prices for the first time in years, threatening the prospects of an already fragile economy that has relied on housing for job growth and business spending, an important investment for millions of Chinese Familys.

So far, China’s efforts to revitalize the housing market with lower mortgage rates, easier credit, subsidies and relaxed regulations have not worked. In April and May, new home prices in more than half of China’s 70 largest cities fell for the first time since 2016, and home sales plunged nearly 60 percent.

Zhanjiang, a port city with seven million inhabitants, had some of the sharpest price declines among major cities. Mr. Liang said he only sold five apartments in April. May was even worse.

“Prices have fallen, but enthusiasm for buying houses has still not returned,” Mr. Liang said. “The economy is not doing well and the ongoing impact of the pandemic has completely changed the situation.”

As China slowly emerges from restrictive lockdowns, the country is focused on avoiding an economic slowdown. Last month, Premier Li Keqiang called an emergency meeting and urged more than 100,000 officials that businesses and local governments must act with “clear urgency.”

The real estate sector is a big and important lever. Since China began enacting commercial housing reforms in 1988, ownership has become a pillar of a burgeoning economy. According to some estimates, it accounts for about 30 percent of China’s GDP when related industries such as construction and property management are included.

Property also has a deep meaning in Chinese society. For young people who want to get married, owning a home is considered a must before starting a family. Instead of investing in stocks and bonds, Chinese households invest the majority of their savings in real estate – more than twice as often as Americans.

A hit to house prices could also affect the economy by undermining Chinese buyers’ willingness to pay for appliances, clothes, jewelry or cars.

With the economy in limbo, Beijing is trying to get people buying property again.

The government suspended a trial program of property taxes in March. Last month, Chinese banks cut mortgage costs by the largest amount since the introduction of a new interest rate system in 2019.

In addition, various local governments have introduced dozens of new policies to encourage home buying. Meishan, a city in Sichuan province, said it will offer subsidies for new home buyers before the end of the year. The government of Wenzhou, a city in Zhejiang province, said it would now only allow interest repayments on mortgages for first-time homebuyers in the first three years. Huainan, a city in Anhui province, ordered banks to provide more money and shorten loan approval times, as well as lower mortgage rates and down payment requirements for first-time buyers.

For some potential homebuyers, the incentives aren’t enough to offset the risks.

Cao Jingyu, who works for an outdoor furniture company in Shenzhen, said a lower deposit would only mean more bank payments over time. Given the fragile economy and the ever-present possibility of being laid off, she doesn’t want to tie up a large chunk of her money in a home, she said.

Earlier this year, she almost bought an apartment in the northern part of Shenzhen. After putting down a down payment on a home under construction, she hesitated when she realized only 20 percent of the units had sold. She withdrew at the last minute.

“I’m still worried about the big risk of buying a house,” said Ms. Cao, 30. “If I want to sell the property, can I get rid of it?”

A year ago, concerns about China’s property market weren’t for reluctant buyers, but for frenzied speculators. When a property in Shenzhen became available in March 2020, the building’s 288 units sold out online in seven minutes, according to state media.

Chinese officials, concerned about a housing bubble and its impact on the financial system, enacted the so-called three red lines policy to curb the reckless borrowing habits of the country’s biggest real estate developers.

The new rules, requiring companies to pay down debt before borrowing more money, began to reveal cracks in the housing market. In late 2021, China Evergrande Group, the heavily indebted real estate developer, defaulted on bond payments to creditors. Since Evergrande, more than a dozen companies have gone bankrupt.

Amid the debt woes, Chinese officials urged developers to prioritize completion of properties already sold. But the rush from cash-strapped companies to complete projects has raised a new set of problems: protests over substandard work.

When Evergrande ran into liquidity problems, an estimated 1.6 million people were waiting for the developer to complete their homes they had already bought.

He Qiang, a 27-year-old car salesman, bought an Evergrande property in 2019 with the expectation that it would be ready in 2021. It has been postponed to June.

Mr. He said he didn’t think the deadline was realistic. The apartments don’t have electricity yet. The elevators are not finished yet, and the wooden floors are not yet installed.

And he has already noticed problems. The windows are leaking. The outer spaces are just wide car lanes, with no sidewalks for local residents. There are no bushes or trees, just bare patches of grass.

When Evergrande called a ceremony for the building, residents protested and the event was canceled. The developer told residents there was no money for more.

“We were told not to be too demanding. There are still many people who couldn’t finish their homes,” said Mr. He.

Evergrande did not reply to emails asking for comments and phone numbers listed on its website have been disconnected.

Across the country, people are protesting quality issues and unfulfilled promises.

Louis Lee, a 38-year-old real estate manager, bought an apartment in the Moon on the Sea complex in 2019 from Vanke, one of the country’s largest real estate developers. She was told the Guangzhou complex would eventually include a mall with grocery stores and an international school – a key selling point for Ms Lee, who has two young children.

But more than a year after they moved in, the school building and shopping center are empty. Residents said Vanke told them there wasn’t enough interest from businesses to fill the mall and an application for the school involved government bureaucracy.

The local district questioned this version of events. It informed residents that Vanke had not paid rent on the land for the past few years because of a financial dispute with the village that owned the land. Eventually, after the matter went to court, Vanke paid, but there are currently no plans for an international school.

In April, angry homeowners hung a banner covering the top 10 floors of the skyscraper that read “False advertising of Vanke,” based on photos taken by residents. Other banners warned people that buying a Vanke home would “ruin their lives.” When police arrived to tell homeowners to remove the banners, protesters refused and clashed with officers. Vanke did not respond to emails asking for comment.

Ms. Lee regrets purchasing the property. She says that the developers’ financial problems lead to quality problems.

“Personally, I don’t recommend buying apartments right now,” Ms. Lee said. “People should really think twice.”

Claire Fu contributed reporting and research.

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