China’s economy could collapse on homeownership dreams


Last November, hundreds of angry homeowners gathered on the roof of an unfinished apartment building in Nanchang, the capital of China’s Jiangxi province. They sat down and unfurled red-and-white banners along the exterior walls demanding completion of the house they had already partially paid for. On the dirt below, workers inflated large airbags to catch anyone jumping.

Nearly 500 miles away in Shanghai, a 26-year-old interior designer watched protest videos on social media and watched his life plans fall apart.

The woman and her husband, who requested anonymity to avoid retaliation, purchased a three-bedroom unit three years ago in a pre-sale for the sprawling Xinli City project. Just a few hours’ drive from both hometowns, the development was touted as a ‘750,000 square meter ideal living city’ with a nursery for the couple’s young children. It was supposed to be completed in November. She didn’t know that construction had stopped three months before her until she saw the video.

Like most Chinese homebuyers, they started paying before construction was complete. For years, this kind of arrangement, which accounted for more than 80% of his Chinese home sales, gave developers easier access to finance and facilitated rapid expansion as home prices skyrocketed.

house under construction

Homes under construction at Tahoe Group Co.’s Cathay Courtyard development under construction in Shanghai in July.

(Bloomberg via Getty Images)

But with financing drying up and debts looming due, the resulting cash shortage has left thousands of units unfinished, prompting owners to boycott mortgages in protest.

The demand for answers has led to excuses, intimidation and detention, forcing homeowners in Niisato to take desperate measures, she said. Last month, she stopped paying her 30-year mortgage, as did thousands of other homeowners who bought homes under construction there.

“We are getting to the point where no one cares, so of course we have to protect our own rights as well,” said the woman. “It is difficult to have a stable society if we, the people, are not happy.”

Such boycotts have spread to more than 300 projects in more than 100 cities and are the result of a growing crisis that has hit the heart of China’s economic and political stability. The real estate sector accounts for about a quarter of China’s economy, and its deterioration is spreading financial pressure on the domestic industry. The impact threatens to spill over into the global economy, undermining the chances of China’s growth engine helping lift the world out of a potential recession.

The enthusiastic real estate industry has contributed greatly to China’s rapid economic growth and homeownership dreams. The impact of a hard landing in the real estate sector has long been a major economic concern, as more than half of household wealth is spent on housing.

Hoping to ease a housing boom that has become unsustainable, the government implemented new lending requirements in 2020 to curb over-borrowing. Sales slowed, investors struggled, and the pressures of the pandemic sent the sector into a spiral that worsened.

“I think the authorities underestimated the impact of a small number of companies getting into trouble,” said Bart Hoffman, director of the Institute of East Asian Studies at the National University of Singapore.

A construction crane towers over an unfinished building

China Evergrande Group Royal Peak residential development under construction in Beijing in July.

(Bloomberg via Getty Images)

What was once a virtuous cycle has become a vicious circle. Home prices fell for the 11th straight month in July, and dozens of developers, including real estate giant Evergrande Group, defaulted. The impact has rippled through land sales, labor, construction materials, and household appliances.

Michael Pettis, Professor of Finance at Peking University Guanghua School of Management said: “The bigger you get these spreading waves, and the bigger the sector, the more powerful those waves are. Unfortunately, the real estate sector is huge in China.”

A worsening economic slowdown in China, a major commodity consumer and the world’s second largest economy, will also have a noticeable impact on a fragile global financial system.

Countries around the world are under pressure from rampant inflation and disrupted supply chains. Russia’s invasion of Ukraine cut off supplies of natural gas, oil and grain. The US economy has just contracted for her second straight quarter, and the war is weakening consumer confidence and manufacturing in Europe’s major economies. The International Monetary Fund downgraded its global economic growth forecast in July amid heightened risks from China’s zero COVID policy and housing crisis.

In March, Chinese officials wanted growth to reach 5.5% this year, the slowest growth in 30 years, even if the ambitious target is met. It has been shattered by President Xi Jinping’s hardline approach to the COVID-19 outbreak as it hinders economic activity.

The country is simultaneously grappling with a slowdown in private enterprise brought about by regulations aimed at reducing income inequality. Last year, China’s giant tech industry was hit hard by what authorities deemed unscrupulous business practices. Another crackdown on for-profit education companies has weighed on the lucrative tutoring market. As growth slows, businesses lay off workers and urban youth unemployment reached a record high this summer.

All of this contributes to growing disillusionment and pessimism among China’s middle class. Last year, many Chinese embraced the philosophy of “lying down.” This is a refusal to struggle in the domestic rat race over declining marginal profits. A darker phase of ‘let it rot’ has begun this year with the extreme lockdown that has left millions trapped in their homes in Shanghai.

Mortgages at risk are estimated to be a small fraction of the country’s total, but the mistrust born of the boycott means that propensity to save is at its highest in decades amid economic uncertainty. It can further strain consumer confidence when it is at levels.

It’s always been a given for interior designers that one day they’ll buy a house. She and her husband grew up in rural Jiangxi before attending college in Nanchang. Her husband wanted to work in Shanghai to buy a small house, but she decided to stay closer to her family instead. In the summer of 2019, one month after my child was born, I went out looking for an apartment.

Currently, an unfinished property in Niisato City is closing in on their lives. She and her husband can’t sleep at night. Authorities in her hometown called her to locate her parents and even tried to dissuade her from demanding that construction resume.To her embarrassment, many people at home He knew her predicament and seemed to sneer at her behind her back. “But did we do something wrong?” she asked.

“Our money wasn’t stolen or snatched. Everyone worked hard to make money,” she said. “We just want to live and work in peace and contentment.”

She said they sunk about $104,000 in life savings into her apartment. income has plummeted. Her income has since returned to normal, but she doesn’t see the point in paying more for a house that may never be finished.

She hoped collective action would force a response. So far she’s been terribly disappointed.

“It’s already not easy for us to buy a house in the capital. Now the house is gone, our money is gone, our family is in trouble,” she said. “Because of this, I don’t have much confidence in life anymore.”

The housing upheaval is shaping up to be one of the biggest challenges facing President Xi at a time when social and economic stability are paramount. The Chinese leader is expected to break the precedent with his third five-year term later this year, cementing himself as the country’s most powerful ruler since Mao Zedong. But officials have been hesitant to turn to massive stimulus and bailouts to ease the economic pain.

“Beijing is in a tough spot,” said Pettis of Peking University. “It would be terrible for the economy to see the real estate sector collapse. But we don’t want the bubble to continue to expand.”

Instead, China’s supreme leader has shifted the responsibility of resolving boycotts and promoting growth wherever possible to the provinces. However, municipalities are also suffering from the loss of important sources of funding, such as land sales, which account for about 40% of their revenues.

Regulators are considering a moratorium on mortgages for unfinished apartments, and Zhengzhou, the city facing the most boycotts, is setting up a relief fund to help developers complete projects, they said. Bloomberg reported. Some housing developments have successfully resumed construction, according to Chinese media.

But in Nanchang, banks and developers are keeping quiet about the city’s future.

Gu, a 32-year-old construction worker who refused to give his first name, lost his appetite waiting for news about the project. He bought his apartment in the spring of 2020, when the building went bankrupt and the two-plus-year pandemic was unimaginable.

He had no idea that such a large-scale development could collapse. “There are too many destabilizing factors,” he said.

After the boycott, he noticed a similar change among those around him.

“Cash is king in this economy and money on hand is the most important thing,” he said. “Buying a house is probably no longer considered.”



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