The prolonged crisis in the real estate 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 known for its tech scene and picturesque West Lake.
In 2022, they invested their savings in another apartment that they hoped to rent or resell. Instead, the 960-square-foot apartment has sat empty as home 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% of Chinese household assets in real estate, every 5% drop in prices could destroy up to $2.7 trillion in wealth, according to Bloomberg Economics estimates.
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The housing crisis is one of the biggest challenges facing Chinese leader Xi Jinping, who has promised to bring a “sense of well-being” to ordinary citizens. Xi has spoken in recent weeks of the need to “take concrete measures that improve people’s lives and warm their hearts.”
But many citizens are feeling the effects of the real estate crisis, which is at the heart of China’s broader economic slowdown. Fearing they could lose money on their biggest asset, people are avoiding spending altogether, further depressing the world’s second-largest economy.
Official figures this week showed China’s economy grew by just 0.7% in the second quarter of this year, well below expectations, bringing annual growth to a relatively weak 4.7 percent.
But measures to help the property market are unlikely to feature prominently in plans to support growth at a key Chinese Communist Party meeting in Beijing this week, analysts said.
The Communist Party’s Central Committee is holding its “Third Plenum” this week, an economic meeting that takes place roughly every five years and serves to promote major reforms.
In 1978, Deng Xiaoping, the strongman of the time, used that year’s plenum to build consensus around his policy of “reform and opening up,” which triggered rapid growth for decades.
Using this year’s plenum to announce strong support for the housing market would be one of the quickest ways to restore consumer confidence and boost an economy suffering from chronically depressed demand, analysts say.
“The most effective way to stimulate the economy is to support the real estate sector,” according to research firm Gavekal Dragonomics. Even if authorities are forced to do more eventually, they “do not appear to be in a hurry to act at the moment,” its analysts wrote in a note published Monday.
So far, Xi Jinping has taken a cautious approach to reviving a struggling real estate market. He has avoided taking drastic measures to revive economic activity or providing direct support to consumers – what liberal economists see as the quickest way to boost growth.
Instead, the government has adopted piecemeal measures to try to restore confidence without triggering a new cycle of bad debts. In May, officials promised easier access to mortgages, introduced an “old-for-new” housing buyback program, and launched a drive to buy up unfinished housing projects to turn them into affordable housing.
“To be honest, they’ve tried everything,” said Alicia Garcia-Herrero, chief economist for Asia Pacific at Natixis, a French investment bank. “It’s a bloated sector. It’s too big.”
None of this had any noticeable effect. New home prices in China’s 70 largest cities continued to fall in June, dropping another 0.67 percent from May, according to official figures.
Consider Foshan, a city of 9 million people near the industrial metropolis of Guangzhou. Restrictions on non-residents buying property there were lifted in December, but that did little to improve prices.
“Those buying houses today are all people who really need them,” said Teng Lai, a real estate agent in Foshan. No one is buying for investment and even those buying out of necessity are “waiting and watching to see if prices will be cheaper tomorrow,” he said.
Instead of addressing this problem, Xi Jinping is prioritizing long-term plans to make China a “science and technology superpower” by focusing on emerging technologies like artificial intelligence and advanced manufacturing of goods such as solar panels, electric vehicles and lithium-ion batteries.
But public perceptions of inequality are growing. Citizens’ trust in work has faded while their concerns about systemic injustices are growing, according to a recent study.
When surveyed in 2009 or 2014, most Chinese people considered their lack of effort or skills to be a major obstacle to wealth. But by 2023, the most commonly cited reason for poverty was inequality of opportunity, with an unfair economic system coming in third, according to a study by Martin Whyte, a retired Harvard 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 study last week. “The most likely consequence of a sense of inequality is therefore a slowdown in the economy.”
Real estate may be “critical to national strength and people’s livelihoods,” but authorities must strike a delicate balance between managing debt risk and housing affordability, said Liu Jiayan, an associate professor of urban and rural planning at Tsinghua University. “Just because it’s important doesn’t mean we should immediately roll out large-scale policies to protect the market.”
During Deng’s era, urbanization and the rush to build and buy houses transformed Chinese society.
In 1990, only a quarter of China’s population lived in cities, while two-thirds of the country’s 1.4 billion people now live in urban areas. Rising property prices in city centres have helped create a wealthy, ambitious 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 collapsed. Tens of millions of apartments now sit empty. Millions more unfinished apartments, often sold before construction began, face delays because cash-strapped developers can’t pay builders.
Among those most affected by the fallout are people who invested in the sector in recent years, such as Clara Liu and her husband.
“All those who entered the sector late are now facing prices much lower than those they paid when they bought,” said García-Herrero.
Faced with the proliferation of new unfinished or empty apartments, some residents of major cities such as Beijing, Shanghai and Guangzhou are getting creative. They are increasingly turning to older, cheaper buildings that had previously been overlooked in favor of new construction.
Zheng Zhaoping, 29, a marketing director at a cosmetics company in Guangzhou, bought a two-bedroom apartment on the top floor of a four-story walk-up building built in 1995 in April. The asking price had dropped by $55,000 in six months, leading her to believe she was getting a bargain.
“Many people think it’s not a good time to buy” because of investment risks from constantly changing policies, Zheng said. But “I think prices in top-tier cities like Guangzhou and Shenzhen will be relatively stable.”