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Economists believe the situation will get even worse.
Sales of new homes in China fell 6% last year, returning to levels not seen since 2016, according to the China Bureau of Statistics. Existing home prices in the four wealthiest cities (Beijing, Shanghai, Guangzhou and Shenzhen) fell 11% to 14% in December from a year earlier, according to brokerage Centerline Property.
Developers are starting fewer projects. Homeowners are paying off their mortgages early and borrowing less. Once-prosperous real estate companies lost interest in foreign investors after defaulting on about $125 billion in foreign bonds between 2020 and late 2023, according to S&P Global Ratings statistics. is stuck in long-term negotiations.
As Chinese developers and local governments scramble to attract homebuyers, some resort to bizarre marketing tactics.
A real estate company in Tianjin ran a video ad with the slogan, “Buy a house, get a free wife.” This was a play on words using the same kanji as the phrase “buy a house and give it to your wife.” “However, it is worded in a sentence structure typically used to offer freebies to homebuyers. In September, the company was fined $4,184 for this ad.
Last year, a housing complex in eastern China’s Zhejiang province promised homebuyers a 10-gram gold bar.
Earlier this month, Shen Songchen, former head of the statistics department at the People’s Bank of China, told a local conference that the housing slump would continue for two more years. He believes new home sales will decline by more than 5% in both 2024 and 2025.
Wall Street economists are also sounding the alarm about how long the real estate recession will last.
Raymond Yong, ANZ’s chief China economist, said there was a fundamental shift in the way Chinese people viewed the property sector, with housing becoming more and more expensive. He said it is no longer considered a real estate sector. A safe investment.
China’s real estate sector and related industries once accounted for about a quarter of its gross domestic product, but the slump in the sector is a major drag on the world’s second-largest economy. This has led to growing calls for the Chinese government to do more to boost the sector, but so far Chinese authorities have stuck to piecemeal policies rather than introducing breakthrough economic stimulus. ing.
Many economists are drawing comparisons to Japan, which took decades to recover from the collapse in real estate and stock prices. China’s stock market has been in a multi-year slump.
Liu Liu, head of Asia-Pacific economic analysis at Citi Global Wealth Investments, said the People’s Bank of China can help make the situation less painful, but it needs to be proactive. He said the central bank still has policy space and could take big steps to make a big impact.
Liu Yuan, head of real estate research at Centaline, said without government support, new home prices would need to fall another 50% from current levels before hitting rock bottom. This is based on the assumption that a tipping point will only occur when it is cheaper to buy a home than rent, Liu said.
China’s real estate recession has claimed dozens of lives. More than 50 development companies (mostly privately owned) have defaulted on their debts. Developers have millions of unfinished homes that have been sold but never delivered. Chinese authorities have set aside billions of dollars to help builders complete apartments, but congestion is growing.
The crisis has depleted the financial resources of some Chinese local governments, which previously relied on land sales as their main source of income. Economists estimate that it has hidden debt worth between $400 billion and more than $800 billion. To calm talk of possible default, the central government has launched a debt exchange program to help some countries refinance.
Some economists are optimistic. Helen Chao, chief China economist at Bank of America, said buyers of existing homes will gradually return to the new home market in the first half of this year, supporting the sector. “The situation will gradually improve from here,” Qiao said.
But investors are bearish, with most still expecting more pain. The benchmark for Hong Kong-listed real estate stocks had fallen for four consecutive years by the beginning of this year. Since January 1st, it has fallen another 15%.
Email Rebecca Feng (rebecca.feng@wsj.com) and Cao Li (li.cao@wsj.com).
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