A year ago, business was buzzing for Liang Jiawei, a real estate salesman in Zhanjiang, a coastal town in southern China.
He could sell three apartments in one day without too much trouble. The apartments were fairly generic, Mr. Liang admitted, but the new complex of buildings—in an up-and-coming neighborhood not far from a high-speed train station—was enough to lure buyers.
Then came a sudden reversal of fortune. China’s real estate sector began to crumble under the weight of its massive debt. What already looked to be the country’s worst housing market in years was dealt another blow when a new strain of the coronavirus triggered widespread lockdowns and brought the economy to a standstill.
The turmoil has led to a decline in new home sales and a fall in real estate prices for the first time in years, threatening the prospects of an already fragile economy that had become dependent on housing for job growth and business spending, a key 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 for the first time since 2016 in more than half of China’s 70 largest cities, and sales of such properties fell nearly 60 percent.
Zhanjiang, a port city of seven million inhabitants† had some of the strongest price drops among major cities. Mr Liang said he sold only five apartments in April. May was even worse.
“Prices have come down, but the enthusiasm for home buying is still not back,” said Mr. lian. “The economy is not good and the ongoing impact of the pandemic has completely changed the situation.”
As China is slowly emerging from restrictive lockdowns, the country is focused on avoiding an economic slowdown. Last month, Prime Minister Li Keqiang called an emergency meeting and warned more than 100,000 officials that businesses and local governments must act with “clear urgency”.
The real estate sector is a major and important lever. Since China began implementing commercial housing reforms in 1988, real estate has become a pillar of an emerging economy. By some estimates, it accounts for about 30 percent of China’s GDP, taking into account related sectors 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 house is considered a must before starting a family. Instead of investing in stocks and bonds, Chinese households spend most of their savings on real estate — more than twice as fast as Americans.
Also, a blow to real estate prices could ripple through the economy by reducing how much Chinese buyers are willing to spend on appliances, clothing, jewelry or cars.
With the economy in limbo, Beijing is trying to get people to buy real estate again.
The government suspended a pilot program to introduce property taxes in March. Last month, Chinese banks cut mortgage payments by the largest amount since a new interest rate system was introduced in 2019.
In addition, several local governments have rolled out dozens of new policies to encourage home buying. Meishan, a city in Sichuan province, said it would offer subsidies for the purchase of new homes before the end of the year. The government of Wenzhou, a city in Zhejiang province, said it would now allow interest-free mortgage payments for first-time homebuyers for the first three years. Huainan, a city in Anhui province, has ordered banks to spend more money and shorten loan approval times, as well as lower mortgage rates and down payment requirements for new buyers.
For some potential homebuyers, the incentives are not 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 state of the economy and the ever-present possibility of being fired, she said she doesn’t want to put a large chunk of her money into a house.
Earlier this year, she almost bought an apartment in the north of Shenzhen. After making a down payment on a home under construction, she was hesitant to find that only 20 percent of the units had been sold. At the last minute she withdrew.
“I’m still concerned about the high risk of buying a house,” said Ms. Cao, 30. “If I want to sell the property, can I get it off my hands?”
A year ago, concerns about the Chinese real estate market were not reluctant buyers, but frenzied speculators. When a property in Shenzhen became available in March 2020, the building’s 288 units sold out online within seven minutes, according to state media.
Chinese officials, concerned about a housing bubble and its impact on the financial system, implemented the so-called three red lines policy to curb the reckless borrowing habits of the country’s largest real estate developers.
The new rules, which required companies to pay off debt before they could borrow more money, began to reveal cracks in the real estate market. At the end of 2021, China Evergrande Group, the highly indebted real estate developer, defaulted on paying bonds to creditors. Since Evergrande, more than a dozen companies have defaulted.
Amid the indebtedness, Chinese officials forced developers to prioritize finishing buildings they had already sold. But companies’ rush to run out of money to complete projects has created a new set of problems: protests over shoddy work.
When Evergrande ran into liquidity problems, an estimated 1.6 million people waited for the developer to complete 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.
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Mr He said he does not think the latest deadline is realistic. The apartments still have no electricity. The elevators are unfinished, and the wooden floors are not installed.
And he has already noticed problems. The windows are leaking. The outdoor areas are just wide highways, with no sidewalks for residents. There are no bushes or trees, just bare patches of grass.
When Evergrande staged a ceremony in front of the building, residents protested and the event was cancelled. The developer told residents there is no money left for anything.
“We’ve been told not to be too demanding. There are still plenty of people who can’t finish their apartments,” Mr. He said.
Evergrande did not respond to emails requesting comment, and the phone numbers on the website were shut down.
All over the country people are protesting about quality problems and broken promises.
Louis Lee, a 38-year-old administrator at a real estate company, bought an apartment in 2019 on the “Moon on the Sea” complex from Vanke, one of the largest property developers in the country. She was told that the Guangzhou complex would eventually include a shopping center with supermarkets and an international school – a major selling point for Ms. Lee, who has two young children.
But more than a year after she moved in, the schoolhouse and shopping center are still empty. Residents said Vanke told them there was not enough interest from businesses to fill the mall, and that an application for the school was mired in government bureaucracy.
The local district challenged this version of events. It told residents that Vanke had failed to pay 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 finally paid, but there are currently no plans for an international school.
In April, outraged homeowners hung a banner on the top 10 floors of the high-rise that read “Vanke false advertising,” based on photos of residents. Other banners warned people that buying a Vanke house “would ruin their lives.” When police arrived to tell the homeowners to remove the banners, protesters refused and clashed with officers. Vanke did not respond to emails requesting comment.
Mrs. Lee regrets buying the property. She says the financial problems developers face lead to quality issues.
“Personally, I don’t recommend buying apartments right now,” Ms. Lee said. “People really need to think twice.”
Claire Fu contributed to reporting and research.