China’s troubled property market adds strain to global economy

“The property market is the biggest gray rhino,” he said, referring to a term the government has used to describe visibly big problems in the Chinese economy that are disregarded until they start gaining momentum.

China is grappling with an economic slowdown brought on by efforts to curb debt and worsened by the trade fight with the United States. But any solution will have to contend with the country’s property problems. More than one in five apartments in Chinese cities – roughly 65 million – sit unoccupied, estimates Gan Li, a professor at Southwestern University of Finance and Economics in Chengdu.

“We are already in a difficult economic situation,” Gan said. “The decline will only get worse.”

In places like Jurong, homeowners are paying the price. Some property developers have slashed prices on new apartments to ramp up business or cut corners to save money. That undercuts the property values of earlier buyers, who increasingly are taking to the streets to protest.

Wang Liwei was selling homes in Nanjing before he decided to make the move to Jurong. Lam Yik Fei

In October, dozens of apartment buyers in Jurong gathered outside the sales office of Center Park, a 22-building residential complex pitched by Country Garden, the developer, as China’s version of Central Park in Manhattan. Security guards barricaded the entrance to prevent protesters from storming the building to demand their money back.

“I am very angry,” said Jia Rui, 24, who bought a Center Park apartment a year ago. He watched last year as property prices rose for months before deciding to buy the apartment, which will be bigger than the one he currently lives in with his wife and parents. When he learned that similar apartments were later being sold at nearly half the price, Jia said, he felt helpless.

“It is not possible to get a refund,” Jia said. Then again, he added, Jurong will have a subway line connecting it to Nanjing, a major city, by 2023. “Maybe the price will go back up by then,” he said.

China’s property market has long been a wild ride, driven by speculation from property developers and homebuyers alike and made worse by government efforts to tame prices if they get too high and juice sales if they get too low. The current slowdown stems in large part from a three-year building spree driven by a surge in prices in many cities. Officials struggled to contain a white-hot property market with measures that included open consideration of a national property tax.

Agile Garden, another mass-scale property development takes shape in Jurong. But who will buy? Lam Yik Fei

“You never know when the music will stop in China, so you try to do as much as possible before the music stops,” said Nicole Wong, a property analyst at CLSA, a stock brokerage. “Which it did.”

Housing is key to China’s well-being. It accounts for roughly one-fifth to one-third of China’s economic growth, depending on whether ancillary industries like construction and furniture-making are included. Property is the largest source of wealth for households, a given in a country with strict rules against moving money overseas and a volatile stock market. In major cities, it sometimes accounts for as much as 85 per cent of a family’s assets, according to researchers at Southwestern University.

That store of wealth is looking increasingly shaky. Sales in terms of gross floor area on the market have dropped sharply since September. The share of apartments in new developments that are being sold has plunged since the summer. The number of failed land auctions has doubled this year, indicating that property developers are unwilling or unable to buy land for new developments.

Hu Peiliang, the real estate agent in Jurong, and his friend Wang Liwei were selling homes in Nanjing before they decided to make the move to Jurong. If prices were so high in Nanjing, it seemed only logical to both men that prospective buyers who were unable to afford a place there – or who were locked out of the market because of residential restrictions – would look to Jurong. The government’s plan to build a metro system made the city even more appealing.

Now people are angry, and Chinese officials and property developers are doing something about it. Officials tried various measures to take steam out of the market last year and are now reversing some of them.

In recent months, they have loosened mortgage requirements, eased restrictions on when homeowners can resell their properties and made it easier for university students to continue living in the cities where they are studying after they graduate, potentially increasing housing demand. In some cities, property developers have cut deals with homebuyers to give them back the difference between the current price and the one they originally paid.

At the Center Park development site, green netting drapes over a dozen half-built apartment buildings, construction cranes on top of each. Men with white gloves stand at the sales office, from which soft jazz music is playing, waiting to greet prospective buyers. But there are few customers, and the greeters mostly look bored.

The New York Times

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