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As China’s economic recovery continues to underwhelm, observers’ sights are turning from the country’s intractably weak consumer sector to the more worrying downturn in the enormous Chinese real-estate market.
Sluggish economic growth in general and a softening property market in particular have increased expectations for stimulus measures to inject life into a post-COVID recovery that has fallen vastly short of expectations.
So far, however, policy support for both retail consumption and real estate has been small and sporadic, with most funds going instead to China’s traditional stimulus destination of choice: infrastructure.
The dour property data cast a pall over China’s overall economic outlook, as the sector accounts for an estimated 30% of the country’s gross domestic product.
But the 1.2% contraction in value-added real-estate sales for the second quarter — announced Tuesday by the National Bureau of Statistics — came just hours after a separate data dump showed weakness across sectors including retail sales and lackluster GDP expansion.
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In response, Morgan Stanley, JPMorgan Chase and Citigroup downscaled China’s full-year growth estimates by at least half a percentage point, to 5% each. The pandemic-plagued years of 2020 and 2022 — when China recorded growth of 2.2% and 3%, respectively — were assumed to be blips for an economy that has expanded at annual rates above 10% for much of the last 40 years.
Many are now questioning whether lower growth is a new normal for the world’s second largest economy. And in many ways the property slump is a microcosm of this remaking of the country’s economic development.
“ ‘I don’t need new curtains or a sofa,’ said one 58-year-old retiree in Beijing, referring to new government commercial incentives. ‘I’d like the value of my home to start rising again.’ ”
Average citizens who have stored most of their savings in housing are suddenly finding their main nest egg a dwindling investment. Buildings in some of the country’s biggest cities stand eerily vacant. And the 100 biggest developers saw their sales values fall more than 28% last month, on a year-on-year basis, after a gain of 6.7% in May.
In the tech hub of Shenzhen, famous for having been the center of southern China’s “workshop of the world,” growth was explosive for decades, even by China standards. That has begun to dry up, and an anecdote from a recent report illustrates the boom-to-bust times.
In 2020, there were 51,000 professionally rated real-estate agents in the city, according to a report this week from the Shenzhen Real Estate Intermediary Association. That number has since halved. And that only includes registered agents, in a country rife with off-the-book agents whose position in the sector is even more precarious.
One of those agents, surnamed Yu, said he and many others who worked for professional real-estate agencies have “gone solo” and now advertise their independent property brokering through China’s up-and-coming social-media app Xiaohongshu, or Little Red Book.
“It’s less money than before,” he said. “But I can stay in bed whenever I want.”
Last week, China’s commerce ministry rolled out a set of policies to spur consumption of household products such as furniture, appliances and interior-decor items. The gambit at boosting overall weak consumption and the struggling housing sector went over poorly with locals, among those who noticed at all.
“I don’t need new curtains or a sofa,” said Beijing homeowner Jiang Ming, who is 58 and retired. “I’d like the value of my home to start rising again. I wonder if the good days are over.”
The property woes aren’t confined to the Chinese mainland. Down in Hong Kong, the city’s recent political turmoil is exacerbating problems.
Roughly 13 million square feet of office space is unoccupied, with a Grade A vacancy rate approaching 15%, according to data from Colliers International Group. That is triple the 2019 rate.
Besides the work-from-home trend that has hit office rentals globally, Hong Kong has seen an exodus of foreign businesses as Beijing has taken control of the formerly autonomous financial hub. Numerous democracy advocates are in jail or have fled overseas and live with bounties on their heads.
See: Australian premier criticizes Hong Kong effort to arrest pro-democracy activists in Australia
From the archives (November 2019): China bristles after U.S. Senate passes bill backing human rights in Hong Kong
But mainland Chinese seem eager to fill the gaps, with the lifting of COVID-19–era movement restrictions.
“Inspections and negotiations for office space turned more active since the border reopening. The office market also recorded some sizable leasing transactions last month, which helped to reduce the vacancy rate of the overall market,” said Alex Barnes, managing director of the property consultancy JLL
JLL,
in Hong Kong.
Still, the vacancy rate is three times as high as the 4.6% in Singapore, where many firms have relocated amid China’s takeover of Hong Kong.
Gavekal Dragonomics property analyst Rosealea Yao said at a recent briefing that she doesn’t feel China’s real-estate market has hit bottom. “The situation quite right now is pretty dangerous in my view,” she said.
Read on: What just happened in Beijing? Two theories as to why the U.S. dollar dropped after Yellen’s visit.
Tanner Brown covers China for MarketWatch and Barron’s.
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