‘Prosperous Era’ of China’s Real Estate Market May Be Over: Experts

Local governments across China are pushing ahead with various measures to boost growth in the faltering real estate market after several property giants have defaulted over the past two years.

However, experts believe the saturation of China’s housing market coupled with low investor confidence means the property sector’s decline is unlikely to reverse.

At least 120 cities and regions across China have relaxed mortgage loan requirements for some buyers in the Housing Provident Fund (HPF) program, according to an article published Sept. 15 by Securities Daily, a state-run mouthpiece for information on the financial sector. The amount of HPF loans has also increased, and families of three are being favoured.

In addition, the Chinese central bank announced on Sept. 30 that it would cut interest rates on HPF loans for first-time homebuyers by 0.15 percentage points from Oct. 1.

In China, the Housing Provident Fund is a mandatory savings program for home purchases. The Social Security program also offers mortgages at subsidized interest rates.

Housing market at saturation point

Wang Xiaolu, deputy director of China’s National Economic Research Institute (NERI), said at the 2022 Phoenix Financial Forum on Sept. 21 that China’s housing market has reached a saturation point as the living space, including vacant properties, ongoing projects and current inventory, has increased reached 54 square meters (581 square feet) per capita. In particular, the definition of living space in China includes areas such as balconies, terraces and basements.

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“An average of 1.59 billion square meters has been built annually over the past three years,” Wang said at the forum. “To reach the goal of a 75 percent urbanization rate by 2035, we would only have to build 1.05 billion square meters annually.”

Furthermore, according to Fu Linghui, director of the Department of Economic Statistics at the National Bureau of Statistics (NBS) of China, the real estate market is “currently still in decline.”

“Compared to the same period last year, China’s real estate investment fell 7.4 percent in the first eight months,” Fu said at a Sept. 16 news conference.

Market confidence has dropped “significantly”.

Qu Kai, a Japan-based current affairs commentator, told The Epoch Times that a lack of credible investment opportunities in China has led investors to focus on real estate as an investment rather than the actual use of the property. This phenomenon makes it impossible for the real estate market to recover.

“China’s real estate was treated more as an investment than, say, how it would be used, and this led to real estate development being heavily linked to the Chinese economy, as real estate was one of the few ‘trustworthy’ ones. Opportunities for investors to choose from,” Qu said in an interview with The Epoch Times China edition.

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“However, after the defaults or even mutual defaults of Evergrande Group, Fantasia Holdings, China Fortune Land Development and other prominent real estate developers, market confidence has dropped significantly, and even if real estate developers decide to start new projects now, determining the market value of the property, the involving the property as collateral is a challenge,” said Qu.

No fantasies about booming real estate

Fu Peng, chief economist at leading Chinese brokerage firm Northeast Securities, shared similar views at the Phoenix Financial Forum, noting that China’s real estate sector may need to decline to mitigate risks associated with its massive expansion over the past decade.

“Don’t fantasize about another booming housing market period,” he said. “Technically, real estate’s heyday may be over.”

According to NBS, Tier One cities — Beijing, Shanghai, Guangzhou and Shenzhen — saw a slight month-on-month increase in the average selling price of housing units in August, in contrast to Tier Two and Tier City cities. three cities that saw a decline.

In China, cities are unofficially classified into a five-tier system based on economic development, with Tier 1 cities typically being the largest and most prosperous.

Despite the slight increase in the average selling price of residential units in Tier One cities in August, growth has slowed in cities other than Shanghai in recent months, according to NBS.

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Additionally, many Tier 2 and Tier 3 cities have lowered down payment requirements for buyers interested in second homes.

The CCP’s intervention has pushed up the prices

In light of China’s real estate crisis, Qu said he believes the CCP’s intervention in the real estate sector — an attempt to spur and maintain a strong economy — has actually been a key factor in the rise in real estate prices.

“If China’s real estate bubble bursts like South Korea’s 1997 financial crisis, that is, if houses become negative equity for everyone, then China’s banking industry will also experience a systemic collapse,” he said.

Fear of collapse drove the government, Qi said, “When Beijing saw this possibility, it had to keep prices high and even prohibited developers from lowering them. If the market were to adjust based on supply and demand, so would the abundance of real estate in China [have] lowered prices much sooner.”

Kathleen Li

consequences

Kathleen Li has been writing for The Epoch Times since 2009, focusing on China-related issues. She is an engineer licensed in Australia as a Civil and Structural Engineer.

Ellen Wan

consequences

Ellen Wan has worked for the Japanese edition of The Epoch Times since 2007.

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