China’s slowdown highlights potential pitfalls of housing reforms
In Yanjiao, a town about 40 km east of downtown Beijing, David Wu has found a new way to manage the 13,000 Rmb ($2,048) per month mortgage he can no longer afford. afford.
Instead of listing his three-bedroom apartment for rent or sale, the 32-year-old office worker, who earns Rmb7,000 a month, offered to give it away to anyone willing to pay the cost.
Four years after Wu bought the apartment for 3.9 million Rmb and then rented it out for 2,500 Rmb per month, the property is worth less than 1.5 million Rmb and rents have not budged.
“I thought I could make a fortune out of this investment,” he said. “It ended up being a nightmare.”
Wu is one of many property owners in Yanjiao, once an investment hotspot thanks to its proximity to the capital, who were taken aback by the city’s decision in 2017 to enact some of the country’s toughest home buying restrictions. strictest in the country to curb real estate speculation.
For economic policymakers in Beijing, the danger is that Yanjiao’s past could be China’s near future. President Xi Jinping has managed to calm many of the country’s hottest property markets as part of his campaign to ensure “common prosperity”. But property prices could fall more – and faster – than the government would like, depressing broader economic activity.
China reported on Monday that gross domestic product grew at its slowest pace in 18 months in the fourth quarter of last year, up 4% from the 6.5% rise achieved during the same period in 2020. Quarter-over-quarter growth improved. at 1.6%, compared to a revised 0.7% for the period from July to September, according to data from the National Bureau of Statistics.
“Many Chinese cities could follow Yanjiao [into a] housing recession due to a lack of demand,” said Dan Wang, chief economist at Hang Seng Bank China.
The story of Yanjiao’s rise and fall began ten years ago, when the township became a popular destination for Beijing house hunters who could not afford to buy a house. At the time, real estate prices in the capital were several times higher than in the city just across the border in Hebei province.
“Housing demand took off in Yanjiao after Beijing [prices got] out of reach,” said Wang Chengdong, a local real estate agent.
Between 2010 and 2020, Yanjiao’s population doubled to 630,000.
As migrants flocked to the once agricultural township, so did speculators. Yanjiao real estate agents said house flipping took off in 2015 as Beijing eased credit controls to stimulate the economy.
Sales of new homes in Yanjiao, by floor space, increased by 150% between 2014 and 2016, according to E-House China, a Shanghai-based real estate consultancy. “Everyone thought the real estate frenzy was going to last and the only direction for house prices was up,” Wu said.
In 2017, however, the Yanjiao government said only residents or migrant workers who had spent at least three years in the township could buy homes there.
Transactions fell around 80% in 2017 and 2018 before starting a moderate recovery. “The policy tightening has reduced our customer base of people across the country to a much smaller group of Yanjiao natives, many of whom already own multiple homes,” Wang Chengdong said.
The real estate crisis has put the finances of local authorities under pressure. Sanhe, the city that administers Yanjiao, is expected to see a nearly 50 percent drop in land sales revenue for 2021 after a 30 percent decline in 2020, according to a recent government statement.
According to several people familiar with the government’s policy response, Yanjiao recently stopped enforcing the purchase ban on out-of-town residents, but did not publicly announce the decision. As a result, transactions and prices fell further towards the end of last year.
“The government hasn’t made too many people aware of the new rule for fear of triggering speculation,” Wang Chengdong said. “But how do you stimulate sales without doing [the policy change] well known?”
A Sanhe city official said purchase restrictions have not changed.
As Yanjiao’s housing problems continue, a growing number of real estate investors are struggling with mortgages that far exceed the market value of their apartments. While some struggling landlords, like Wu, are offering their flats for free to anyone willing to take out a mortgage, others have had to default.
According to official data, seizures in Yanjiao increased from 150 in 2019 to 823 last year. A local bankruptcy court judge, who asked not to be named, said he was struggling to cope with the resulting workload.
“I stopped giving free tours of foreclosed homes,” the judge said. “There’s too much.”
Additional reporting by Maiqi Ding in Beijing