China’s Property Crash: Why It’s Kept Top Secret

China’s property market, once a pillar of its economic growth, is now facing a significant downturn that remains largely shrouded in secrecy. The dramatic shift began around 2020 when real estate prices surged to unprecedented levels, reaching more than 17 times the average salaries. This bubble was fueled by key reforms and rapid urban migration.

Key Factors Behind the Crash

The real estate boom in China was driven by several factors:

• Reforms in 1998 shifted housing from state provision to private ownership.
• Nearly 500 million people migrated from rural areas to urban centers.
• Availability of generous credit from state banks encouraged rapid construction.

As a result, construction transformed cityscapes and property speculation became commonplace, enhancing the wealth of millions. However, the first COVID-19 lockdowns marked a turning point. The government, under Xi Jinping, introduced strict regulations limiting the amount of debt property developers could incur, known as the “three red lines.” This led to widespread defaults among major developers such as Evergrande and Country Garden.

Impact of the Crash

The consequences of this regulatory clampdown have been dire. Over five years later, the market is still struggling, with more than $18 trillion in household wealth wiped out due to declining home values. Construction activity, critical to China’s GDP, has faltered significantly.

Decline in Home Sales

Recent data revealed a staggering 42% drop in new home sales among the top 100 builders, marking the most significant monthly decrease in 18 months. This change coincided with a directive from Chinese officials to halt the publication of home sale figures, signaling just how sensitive the situation has become.

Regional Discrepancies

Price drops vary significantly across the country:

• Average home prices in Tier-1 cities like Beijing and Shanghai fell by about 10%.
• In Tier-2 and Tier-3 cities, such as Chengdu and Dongguan, values have plummeted by up to 30%.

These declines have led to abandoned construction sites and unfinished projects, intensifying public dissatisfaction and protests among homeowners trapped in negative equity.

Economic Ramifications

The real estate sector was once responsible for a significant portion of China’s GDP, but its decline is now visibly affecting the broader economy. Construction materials demand has plummeted, impacting global markets in iron ore and steel.

Government Response

Despite the severity of the situation, the Chinese government is cautious about introducing broad stimulus measures. Previous interventions during economic crises, such as the 2008 financial crisis, offered more generous support.

Currently, the government appears focused on allowing a gradual market correction to avoid creating another speculative bubble. Although discussions regarding mortgage subsidies and tax rebates are ongoing, they are not as extensive as in past downturns.

Future Outlook

Experts believe that the property market may take years to stabilize. Historical precedents, such as the US housing crisis, suggest recovery could take up to a decade. Predictions for China indicate a potential for several more years of stagnant or declining property values.

With many families heavily invested in real estate, the ongoing crisis poses a significant challenge, leaving them with homes that are now far from their previous peak values.