The downturn in China’s real estate sector has affected luxury properties in major cities, according to recent reports.
Luxury residential real estate agencies in Beijing released a report last month on the capital city’s high-end property market, which saw the new property turnover rate falling 46 percent year-on-year and the average price down 8.7 percent year-on-year. There are 4,500 luxury apartment units to be sold, and the current turnover rate suggests it would take four years to sell all of them.
The Chinese regime is rolling out more funds for the country’s stagnant real estate market, aiming to bolster a sluggish economy that has declined since the COVID-19 pandemic. The property sector is in sharp decline as sales continue to drop and property developers struggle with high debt.
Canceled Contracts
In Beijing, an increasing number of luxury property buyers are canceling their contracts due to fears of a real estate market crash. Around “30 percent of the properties sold from the beginning of September were canceled by the buyers,” said Zhang Dawei, the chief analyst at Centaline Property Agency in China, as reported by Chinese news portal Sina.
In one example, according to Sina, canceling such a contract would result in a loss of 20 percent of the total value of the property. Despite the losses, real estate agents in Beijing have reported clients choosing to cancel such contracts due to fears of a plummeting property market.
There are also other reasons for buyers to back out of their contracts. In particular, the rising unemployment rate affects homeowners’ ability to meet mortgage payments.
Properties in prestigious school zones in Beijing are also facing challenges. Areas with the best schools are usually considered prime locations in the real estate market.
Similar trends are seen in Shanghai, where properties in the best school zones have lost their appeal to homebuyers. According to property sales data, the financial hub sold 13,300 secondhand properties in October, down 19 percent from a year earlier.
In September, Beijing introduced stimulus policies for the real estate market to boost sales. Initially, sales rebounded, but the trend lasted not more than two weeks. In October, the property prices plunged again.
Li Yujia, a real estate policy researcher based in China, was quoted by Chinese news portal Sohu saying: “The declining rate overall is widening. The September stimulus saw a brief recovery in sales, but in October, it dropped again and at an accelerating rate.”
The lack of consumer confidence significantly contributed to China’s real estate market downturn last month. Furthermore, the looming default of giant property developers, such as Country Garden and Evergrande, only increases the risks in the market.
A ‘Collapsing’ Real Estate Sector
Real estate contributes to approximately 30 percent of China’s economy, making it the largest contributor to the world’s second-largest economy. As China’s major property developers are listed companies in the United States, a collapsing Chinese real estate market would likely reverberate throughout markets worldwide, according to some experts.
On Nov. 15, China’s National Bureau of Statistics released a report on the state of the property sector from January to October, saying that the investments in real estate development during this period fell by 9.3 percent year-on-year and property sales fell 7.8 percent year-on-year.
A report released on Nov. 15 by Japanese financial services company Nomura Securities said that the number of incomplete construction projects in China is “alarmingly massive.” Nomura’s managing director and chief China economist, Ting Lu, estimates there are about 20 million unfinished pre-sale constructions in China; it would cost about 3.2 trillion yuan (about $449 billion) to complete all these projects.
The halted under-construction Evergrande Cultural Tourism City, a mixed-used residential-retail-entertainment development, in Taicang, Suzhou city, in China's eastern Jiangsu Province, on Sept. 17, 2021. Vivian Lin/AFP via Getty Images
The Nomura report also said that China’s real estate sector is “collapsing,” and developers are generally in serious credit crises, making them unable to complete the construction of pre-paid homes for millions of buyers. The potential for social unrest arising from this situation becomes a significant concern for the Chinese Communist Party (CCP).
Worst Year
U.S.-based Chinese entrepreneur Meng Jun recently told The Epoch Times that 2023 could be the worst year for China’s economy compared to the three years during the COVID-19 pandemic.
“We have already seen the almost complete withdrawal of foreign capital from the Chinese market,” he said.
Mr. Meng estimates that “more than half of the private companies and businesses have shut down, especially in the real estate sector.”
He added: “Now, essentially, the property market is already in turmoil. However, the Chinese state media are not allowed to provide an honest report on the issue.”
The CCP’s de facto approach to any crisis that could damage its public image is to conceal information. For example, China’s National Statistics Bureau (NBS) announced in August that it would stop publishing youth unemployment data amid the surging jobless rate among youths, which increased to a record high of 21.3 percent in June. This was viewed as an attempt by the regime to cover up China’s economic problems and suppress public opinion.
Grace Hsing is contributor to The Epoch Times with a focus on China-related topics.
