China’s housing slump shows signs of bottoming out. We’ve been here before

[BEIJING] During China’s slow-moving housing crash, there have been brief stretches when prices stabilised, raising hopes that the multi-year slide was finally over. Each time, those reprieves have proved short-lived – pauses before the market resumed its decline.

After housing prices in several of China’s biggest cities levelled off in the first few months of the year, the market is again at a crossroads. Analysts and economists are split over whether this constitutes a bottom for a downturn that has eroded much of the country’s middle-class savings or merely another lull before the next leg down.

Average prices for existing homes in China’s so-called Tier 1 cities – Beijing, Shanghai, Shenzhen and Guangzhou – ticked up 2 per cent from February through April, according to data compiled by UBS and Centaline, one of China’s largest real estate brokerage firms. The uptick followed a 38 per cent plunge since 2021 that has rippled through the Chinese and global economies.

The toll of the crash has been heavy at home and consequential abroad. Many Chinese families had poured the bulk of their savings into apartments, treating property as a safe bet for building wealth – only to discover, to their anger and dismay, that it was anything but.

Timothy Liu, an office worker in China’s north-central Henan province, is one of those buyers. He spent about US$76,000 on a small apartment in his hometown in 2021, only to see its value drop by nearly a third. Like many in China, he lost his job two years ago and has struggled to find another as the economy has slowed, in part because of the housing downturn.

His only consolation is that he paid cash for a modest home in a low-cost neighbourhood rather than borrowing money to buy in a big city. “Although I managed to avoid taking on a huge mortgage in a first-tier city, my apartment has still dropped in value by nearly 30 per cent – I’m really upset about it,” he shared.

Liu’s predicament is far from unusual. As home values have tumbled, consumers have slashed spending on cars, cosmetics and other nonessentials. With factories unable to sell enough goods at home, China unleashed a flood of exports, resulting in trillion-dollar trade surpluses.

Optimistic analysts now see a turning point, particularly in Shanghai and Shenzhen. Landlords still cannot charge enough rent to cover their mortgage payments, but the gap has narrowed sharply. Shanghai has also made it much easier for buyers to borrow money through a municipal housing fund that provides extra-cheap mortgages.

“Effectively, you are seeing an interest-rate cut,” said Karl Choi, the head of Greater China property research at Bank of America Global Research.

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Choi predicted that prices in major Chinese cities would stabilise in the second half of this year, and that the recovery would spread to smaller cities in 2027.

In percentage terms, China’s housing market has fallen almost twice as far as the United States’ did two decades ago, when the US real estate collapse caused banks to fail and triggered a global financial crisis.

Many Americans had taken out large mortgages with little or nothing down, and they could not keep up with payments once prices stopped rising and began to fall.

Chinese banks, by contrast, have consistently demanded hefty down payments, which urban households can afford because they typically save up to two-fifths of their income.

Those big down payments have cushioned China’s banking system. Prices have to fall a very long way before a mortgage is worth more than the home behind it.

Limiting mortgage losses, however, is not the same as reviving the housing market.

Other analysts dispute whether there are any real green shoots, pointing to the estimated 90 million empty or unfinished apartments and to the long delays sellers face in finding buyers.

Prices briefly stabilised a year ago, too, before plunging again.

In addition, the four Tier 1 cities account for only 6 per cent of China’s population, and prices have fallen even more steeply elsewhere.

Over the past several years, big Chinese cities have allowed more apartments to be sold to residents of smaller cities. “That’s attracted more people from other parts of the country,” said John Lam, head of Asia property research at UBS.

That migration has hollowed out smaller cities. In Yancheng, a town about 320 kilometres north of Shanghai, a resident who gave only his family name, Shao, said that real estate prices had halved in the past few years as people left for larger cities.

“Locals aren’t keen on buying homes here anymore – many have moved to cities further south, like Suzhou or Shanghai, to buy property and don’t come back,” he noted.

As prices have plummeted in China since 2021, the toll has fallen not on banks but on homeowners, who have watched much of their equity vanish.

The nationwide China Household Finance Survey, conducted every two years by Southwestern University of Finance and Economics in Chengdu found that the average net worth of urban households had fallen to US$130,000 by the summer of last year, down from US$163,000 two years earlier.

Even these numbers may underestimate the damage. The survey found that homeowners typically guessed their homes had lost only a fifth of their value since the peak.

Surveys consistently find that Chinese households hold three-quarters of their savings in real estate, often buying an extra apartment as an investment rather than buying stocks, bonds or mutual funds.

A quarter of Chinese urban households own two or more homes, compared with about 4 per cent of Americans, said Sam Radwan, CEO of Enhance International, a global real estate consulting firm in Chicago.

Many Chinese families cannot find renters for these investment apartments because of the glut of vacant units. Even when they do, the rent is often far less than the monthly mortgage payment.

For Liu, who is in his early 30s, the drop in his apartment’s value has wiped out all the savings he had built up since university.

“It feels like I’ve worked for nothing for a decade,” he added. “I can only try to comfort myself by thinking that if I had bought a home and settled in a first-tier city back then, the losses I’m facing now might be equivalent to working for nothing for 30 to 50 years.” NYTIMES