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China's flailing property market weighs on economy, drags down growth

The Yudong International complex in Jurong, China. A glut of unwanted apartments have led to falling home prices, angering earlier buyers who have seen their property values plunge.

Jurong, China

FOR Hu Peiliang, Jurong was a city of cranes, concrete and opportunity. He was so sure it was on the cusp of a boom that last year he moved his family there.

On an overcast day last month, Mr Hu, a 31-year-old real estate agent, pointed to one new building after another as evidence. New city blocks have been built, crosswalks and streetlights erected overnight. One development straddling several blocks called Yudong International will include 120 buildings when completed. But since July, he has sold only a handful.

Unwanted apartments are weighing on China's economy - and, by extension, dragging down growth around the world. Property sales are dropping. Apartments are going unsold. Developers who bet big on continued good times are now staggering under billions of dollars of debt.

"The prospects of the property market are grim," Xiang Songzuo, a senior economist at Renmin University, said during a lecture at Renmin Business School this month.

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"The property market is the biggest gray rhino," he said, referring to a term the government has used to describe visibly big problems in the Chinese economy that are disregarded until they start gaining momentum.

China is grappling with an economic slowdown brought on by efforts to curb debt and worsened by the trade fight with the United States. But any solution will have to contend with the country's property problems. More than one in five apartments in Chinese cities - roughly 65 million - sit unoccupied, estimated Gan Li, a professor at Southwestern University of Finance and Economics in Chengdu.

"We are already in a difficult economic situation," Prof Gan said. "The decline will only get worse."

In places like Jurong, homeowners are paying the price. Some property developers have slashed prices on new apartments to boost business or cut corners to save money. That undercuts the property values of earlier buyers, who increasingly are taking to the streets to protest.

In October, dozens of apartment buyers in Jurong gathered outside the sales office of Center Park, a 22-building residential complex pitched by Country Garden, the developer, as China's version of Central Park in Manhattan. Security guards barricaded the entrance to prevent protesters from storming the building to demand their money back.

China's property market has long been a wild ride, driven by speculation from property developers and homebuyers alike and made worse by government efforts to tame prices if they get too high and juice sales if they get too low.

The current slowdown stems in large part from a three-year building spree driven by a surge in prices in many cities. Officials struggled to contain a white-hot property market with measures that included open consideration of a national property tax.

"You never know when the music will stop in China, so you try to do as much as possible before the music stops," said Nicole Wong, a property analyst at CLSA, a stock brokerage firm. "Which it did."

Housing is key to China's well-being. It accounts for roughly one-fifth to one-third of China's economic growth, depending on whether ancillary industries like construction and furniture-making are included.

Property is the largest source of wealth for households, a given in a country with strict rules against moving money overseas and a volatile stock market. In major cities, it sometimes accounts for as much as 85 per cent of a family's assets, according to researchers at Southwestern University.

That store of wealth is looking increasingly shaky. Sales in terms of gross floor area on the market have dropped sharply since September. The share of apartments in new developments that are being sold has plunged since the summer.

The number of failed land auctions has doubled this year, indicating that property developers are unwilling or unable to buy land for new developments.

Now people are angry, and Chinese officials and property developers are doing something about it. Officials tried various measures to take steam out of the market last year and are now reversing some of them.

In recent months, they have loosened mortgage requirements, eased restrictions on when homeowners can resell their properties and made it easier for university students to continue living in the cities where they are studying after they graduate, potentially increasing housing demand.

In some cities, property developers have cut deals with homebuyers to give them back the difference between the current price and the one they originally paid.

As housing prices begin to fall - in some cities by as much as they did during the depths of the global financial crisis in 2009 - some buyers have made their displeasure known. Jurong, a small city by Chinese standards of 600,000 people about a 45-minute drive from Nanjing, has experienced at least six protests in recent months alone.

Jurong represents a bet by homebuyers that a buoyant market in Nanjing, a former Chinese capital and one of its more picturesque cities, will spread to surrounding areas.

In 2016, some 49,000 apartments were sold in Jurong, a remarkable number for a city where the annual average is closer to 4,000, according to Huifeng Li, a research director at the Purple Mountain Digital New Media Research Institute in Nanjing. The majority of the new buyers these days are speculators, he said.

Mr Hu added: "Mostly it's buyers who are looking for investments who come here. They see opportunities here."

Hundreds of buildings sprang up, offering a glimpse of a future bustling city. Now, these partly constructed buildings have more of a ghost town feel. NYTIMES

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