A year ago, business was booming for Liang Jiawei, a real estate salesman in Zhanjiang, a coastal city in southern China.
He could sell three apartments in one day without straining his arm too much. The apartments were fairly generic, Mr Liang admitted, but the new building complex – in a booming area not far from a high-speed rail station – was enough to attract buyers.
Then came a sudden reversal of fortune. China’s real estate sector began to collapse under the weight of its huge debts. What was already shaping up to be the country’s worst housing market in years suffered another blow when a new variant of the coronavirus triggered widespread lockdowns and crippled the economy.
The turmoil triggered a slump in new home sales and depressed property prices for the first time in years, jeopardizing prospects for an already fragile economy that had come to depend on housing for growth. employment and business spending, and endangering an important investment for millions of Chinese families.
So far, China’s efforts to revive the housing market with lower mortgage rates, easier credit, subsidies and relaxed regulations have not worked. In April and May, new home prices fell in more than half of China’s 70 largest cities for the first time since 2016, and sales of these properties fell nearly 60%.
Zhanjiang, a port city of seven million people, experienced some of the steepest price declines among major cities. Mr. Liang said he only sold five apartments in April. May was even worse.
“Prices have come down, but the enthusiasm for buying houses has still not returned,” Liang said. “The economy is not good and the continued impact of the pandemic has completely changed the situation.”
As China slowly emerges from restrictive shutdowns, the country is focused on preventing an economic slowdown. Last month, its premier, Li Keqiang, called an emergency meeting and issued a grave warning to more than 100,000 officials that businesses and local governments must act with “obvious urgency”.
The real estate sector is an important and important lever. Since China began rolling out reforms in 1988 for commercial housing, real estate has become a mainstay of a rising economy. According to some estimates, it accounts for around 30% of China’s GDP after taking into account related industries such as construction and property management.
Property also has a deep meaning in Chinese society. For young people who want to get married, owning a home is considered a necessary step before starting a family. Instead of investing in stocks and bonds, Chinese households are spending the bulk of their savings on real estate – at more than twice the rate of Americans.
Additionally, a hit to house prices could ripple through the economy by eroding the amount Chinese shoppers are willing to spend on household appliances, clothes, jewelry or cars.
With the economy in limbo, Beijing is once again trying to entice people into buying property.
The government suspended a trial program to implement property taxes in March. Last month, Chinese banks cut their mortgage costs by the largest amount since a new interest rate system was introduced in 2019.
In addition, various local governments have implemented dozens of new policies to promote home buying. Meishan, a city in Sichuan province, said it would offer subsidies for buying new houses before the end of the year. The government of Wenzhou, a city in Zhejiang province, said it will now allow interest-only repayments for the first three years on mortgages for first-time home buyers. Huainan, a city in Anhui province, has 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 buyers, the incentives are not enough to offset the risks.
Cao Jingyu, who works for an outdoor furniture company in Shenzhen, said a lower down payment would simply mean more bank payments over time. Given the fragile economy and the ever-present possibility of being laid off, she says, she doesn’t want to tie up much of her money in a house.
Earlier this year, she nearly bought an apartment in the northern part of Shenzhen. After making a deposit on a house under construction, she hesitated when she noticed that only 20% of the units had been sold. At the last moment, she withdrew.
“I’m still worried about the big risk of buying a house,” said Ms. Cao, 30. “When I want to sell the property, can I get rid of it?”
A year ago, the Chinese real estate market was of concern not to reluctant buyers but to frenzied speculators. When a property in Shenzhen became available in March 2020, all 288 units in the building sold out online within seven minutes, according to state media.
Chinese officials, worried about a housing bubble and its impact on the financial system, have enacted the so-called three red lines policy to curb the reckless borrowing habits of the country’s biggest property developers.
The new rules, which required businesses to pay off debt before borrowing more money, have begun to reveal cracks in the property market. At the end of 2021, China Evergrande Group, the highly indebted real estate developer, defaulted on payment of obligations to creditors. Since Evergrande, more than a dozen companies have defaulted.
Amid the debt woes, Chinese authorities pushed developers to prioritize finishing construction properties they had already sold. But the rush of cash-strapped companies to complete projects has raised a new set of issues: protests over shoddy work.
When Evergrande began to experience cash flow problems, around 1.6 million people were waiting for the developer to complete the homes they had already purchased.
He Qiang, a 27-year-old car salesman, bought an Evergrande property in 2019 hoping it would be completed in 2021. It was postponed until June.
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Mr. He said he doesn’t think the latest deadline is realistic. The apartments still have no electricity. The elevators are not finished and the wood floors are not installed.
And he has already noticed problems. The windows are leaking. Outdoor spaces are just wide lanes for cars, with no sidewalks for residents. There are no bushes or trees, just bare patches of grass.
When Evergrande scheduled a ceremony for the building, residents protested and the event was canceled. The developer told residents there was no more money for anything.
“We are told not to be too demanding. There are still a lot of people who couldn’t finish their apartments,” Mr. He said.
Evergrande did not respond to emails seeking comment, and phone numbers listed on its website have been disconnected.
Across the country, people are protesting about quality issues and broken promises.
Louis Lee, 38, a director of a real estate company, in 2019 bought an apartment in the “Moon on the Sea” complex from Vanke, one of the largest real estate developers in the country. She was told the Guangzhou complex would eventually include a mall with grocery stores and an international school – a major selling point for Ms Lee, who has two young children.
But more than a year after moving in, the school building and shopping center remain empty. Residents said Vanke told them there was not enough business interest to fill the mall and an application for the school was stuck in government bureaucracy.
The local district disputed this version of events. He told residents that Vanke had not paid rent for the land in recent years due to a financial dispute with the village, which owned the land. After the case went to court, Vanke eventually paid, but there are currently no plans for an international school.
In April, enraged landlords hung a banner covering the top 10 floors of the tower that read “Vanke false advertising,” based on photos of residents. Other banners warned people that buying a Vanke home would “ruin their lives.” When the police arrived to tell the owners to remove the banners, the protesters refused and clashed with the officers. Vanke did not respond to emails seeking comment.
Ms. Lee regrets buying the property. She says the financial issues faced by developers lead to quality issues.
“I personally don’t recommend buying apartments now,” Ms Lee said. “People should really think twice.”
Claire Fu contributed reporting and research.
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