Shanghai, China – The once booming Chinese property market is now in a state of prolonged crisis, with no signs of returning to its previous highs according to experts. The downfall of major developer Evergrande in 2021 triggered a broader slump, leading to plummeting housing sales and prices, stalled projects, and debt defaults across the sector.
Collapse of Key Growth Driver Cripples Broader Economy
Real estate represented 25-30% of China’s GDP during the boom years. However, its contribution has now dropped to only 10%, wiping out a crucial driver of growth. The slowdown has severely impacted local governments who relied heavily on land sales for revenue, as well as industries like construction materials that are closely tied to property development.
“There’s not really any sector that can fill in that gap, and there’s no chance of the property market rebounding to what it was before,” said Anna Ashton, a researcher at Eurasia Group.
With consumer confidence also falling due to declining household wealth, analysts say weak domestic demand will hamper broader economic recovery.
Oversupply and Waning Demand Create Perfect Storm
After years of overbuilding and speculative buying, China is now facing a glut of unfinished apartments and office buildings. Demand is projected to fall by 50% over the next decade as population growth stalls.
This mismatch of supply and demand has led to competitive discounting by developers to attract wary buyers. Housing prices have fallen for four consecutive months as of January 2024.
Beijing’s Crackdowns Further Dent Business Sentiment
To make matters worse, frequent government crackdowns on sectors like tech and education have spooked investors and businesses. Companies are unsure how to navigate between Beijing’s competing goals of national security and economic development.
“There’s this continued tension between emphasizing national security and emphasizing economic growth that creates confusion for businesses,” explained Ashton.
Momentum Shifts to Distressed Sales and Debt Restructuring
With new project launches grinding to a halt, the focus has moved to distressed asset sales by cash-strapped developers. Companies like R&F and Country Garden are dumping properties at steep discounts to raise urgently needed capital.
But with most assets located in China while bankruptcy proceedings happen in Hong Kong, it remains unclear whether creditors can smoothly claim those mainland assets. Developers with extensive overseas holdings like Evergrande face long and messy unwinding processes.
As more companies default on debts, Beijing faces calls to shore up social security and employment safety nets to maintain stability. But with growth already slowed to its lowest rate in decades, policymakers have no easy options to turn the tide.
