China’s Ongoing Real Estate Crisis Sparks Concerns over Economy
China’s four-year real estate crisis appears to be worsening, causing distress among investors and homebuyers. The escalating problem is now raising concerns about the potential impact on the country’s economy. The property sector has long been a vital contributor to China’s annual economic growth, accounting for approximately a quarter of it. Moreover, with around 70% of household wealth tied to the real estate market, Chinese citizens have regarded it as a safe haven for their savings.
The consequences of the ongoing crisis are far-reaching, resulting in financial losses for both domestic and overseas investors, as well as numerous layoffs from struggling firms. However, one aspect that is difficult to quantify is the extent of discontent stemming from incomplete apartments and houses abandoned by debt-laden developers. Data from Nomura analysts suggests that by the end of 2022, there were approximately 20 million such unfinished units.
Freedom House’s China Dissent Monitor project has documented 1,777 demonstrations related to the property sector between June 2022 and October 2023, with the majority linked to unfinished properties.
Barron’s interviewed several individuals affected by the crisis and analyzed a wide range of online comments, revealing widespread anger. Li Yun, a housewife from Beijing, remarked, “I’m fortunate that I obtained my apartment before investors rushed in, believing they could rescue Evergrande. However, for later customers I’ve heard about, they encountered issues because the government didn’t intervene, and Evergrande collapsed.”
Evergrande, China’s highly indebted real estate developer, was recently ordered by a Hong Kong court to undergo liquidation. Similarly, Country Garden Holdings, the country’s largest private property developer, experienced its first default on a dollar bond in October and has since been rapidly selling off assets. Despite multiple requests for comment, neither Country Garden nor Evergrande responded.
A significant group affected by the crisis comprises workers who have consistently struggled for years. He Shui, a contractor from Chengdu, commented, “In recent years, getting the promised payment for both personal and commercial property projects has become increasingly challenging. Additionally, the exorbitant lawyer fees required to seek compensation make pursuing legal action hardly worthwhile.” Many individuals find themselves in a precarious situation after paying for properties that were never completed.
Chinese websites are heavily censored, but some comments manage to slip through or can be observed before being deleted by online “sanitizers.” On China’s popular social site Little Red Book, a user identified as Momo shared her dissatisfaction after the completion date for her Country Garden unit came and went. She lodged a complaint at the local government housing bureau, where a representative assured her that her unit would be finished within three months. However, Momo later updated her post, stating, “There’s no sign of construction progress. So all we can do is wait.” Similar grievances can be found across other social media platforms like Douban and Douyin (China’s version of TikTok).
In response to Country Garden’s situation, a user named JeffGH expressed concern on financial news site Caixin, “The situation will undoubtedly result in significant credit loss, erode confidence, and undermine trust. The consequences are immeasurable.” Another user, Madam Ren, shared her experience on Little Red Book, stating, “I accompanied my husband to [our employer] Country Garden for a meeting today. Many people must have heard about the recent severe thunderstorms. I am also one of the victims and almost lost my salary. My husband is also working hard and unable to secure any projects.” Within Chinese social media circles, the term “thunderstorm” is now commonly used to describe a distressed state of a property firm. Madam Ren further noted the wastefulness of empty or unfinished villas in Country Garden, questioning if anyone would be interested in purchasing them.
As the real estate crisis in China deepens, the economy faces increasing instability. Both individuals and the broader market endure significant losses, while discontent and frustration continue to mount. The repercussions of these unresolved issues loom large, making it imperative for the government to address the mounting concerns of investors, homeowners, and workers affected by the crisis.
Analyst comment
Negative news. As an analyst, the ongoing real estate crisis in China will likely lead to further economic instability. The market will experience significant losses, and discontent among investors, homeowners, and workers will continue to grow. The government needs to urgently address the concerns to mitigate the long-term repercussions.
