Jakarta – The bigger the explosion, the deeper and longer the destruction. After two decades of runaway growth, by 2020 China’s property bubble had pushed house prices to more than 17 times the average salary.
A perfect storm fueled this boom, including reforms in 1998 that shifted housing provision from the state to private ownership, the migration of nearly half a billion Chinese from the countryside to the cities, and a glut of credit from state-owned banks.
Construction fever is changing the skylines of China’s cities, families are plowing their savings into apartments, and property speculation is becoming commonplace, helping millions of middle-class households feel wealthier and spend more money.
A turning point came during the first wave of COVID-19 lockdowns when President Xi Jinping’s government imposed strict new rules on debt limits for property developers. The impact of these “three red lines” reforms was brutal. Property giants such as Evergrande, Country Garden and dozens of other smaller companies have defaulted, with more than 70 developers going bankrupt or needing state-backed bailouts to survive.
More than five years later, the ensuing fallout shows no signs of abating. According to Barclays, a British bank, more than US$18 trillion (Rp. 300 quadrillion) of household wealth has evaporated as home values plummeted. Simultaneously occurring, construction activity, previously the main driver of gross domestic product (GDP), has slumped so badly that it is indeed now actually pushing economic growth below Beijing’s target.
Beijing censors private property data
In a sign of how sensitive the downturn is, Chinese officials last month ordered private data providers to stop publishing home sales figures, closing one of the few autonomous windows into the current state of the property market.
The move follows a 42% annual decline in new home sales in october by the 100 largest developers, the biggest monthly decline in the past 18 months, according to China Real estate Information.
Anne Stevenson-Yang, founder and research director of Taipei-based J Capital Research, said the move helped mask the real price decline.
“There is likely to be a broad market decline of 50%,which could fall to 85% before reaching equilibrium,” he told DW.
As an example, Stevenson-Yang cited a colleague in the central city of Xi’an who was offered three houses for the price of one by a developer, equivalent to a two-thirds drop in price for each property.
In Tier-1 cities such as Beijing and Shanghai, average house prices have fallen about 10% from their peak, Oxford Economics wrote in september, with weakening demand for luxury units driving deeper discounts.However,the worst impact was felt in Tier-2 and Tier-3 cities,including Chengdu and Dongguan,where property values plunged by up to 30%.
Half-finished and empty apartments dot the skyline
Across China, the fall