The fact that China has a large number of unoccupied homes has been an open secret in trading circles. A yet-to-be-published report suggests that almost 50 million homes, or roughly 22 percent of the urban housing stock in China, is vacant. The report is authored by Gan Li, a professor at Chengdu’s Southwestern University of Finance and Economics.
Beijing’s attempts at curbing speculative activity in the property market has been an utter failure. Despite president Xi Jinping declaring that “houses are built to be inhabited, not for speculation,” real estates companies have not brought down their building portfolio.
According to estimates, property accounts for almost 70 percent of assets owned by an average urban Chinese family. Any indication of a long-term economic slowdown can cause a panic-driven sell-off by the owners of investment properties, thereby resulting in spiraling prices. “There’s no other single country with such a high vacancy rate… Should any crack emerge in the property market, the homes to be offloaded will hit China like a flood,” Gan said to Bloomberg.
After sales figures in September came out grim, property developers began slashing the prices of new homes. This irked some homeowners who staged a fangnao, a protest against developer price cuts. In Jiangxi Province, property developer Country Garden offered a 30 percent discount on residential units to new buyers. Consequently, existing homeowners who had paid the full amount attacked the company’s sales office.
“Try not to buy homes built in 2018, because while the developers were short of money, the same is the case with contractors… The fourth quarter would be a peak time for residential project completion. Issues which used to be papered over by rising prices could erupt in this period… so we should look out for a sudden surge of fangnao in the coming months,” Zhang Dawei, chief analyst at Centaline Property, said to South China Morning Post.
A looming market bubble
The Chinese property market is also said to be at risk of collapse due to the ongoing U.S.-China trade war. The conflict has dampened spirits of Chinese manufacturers who see a fall in exports very soon. This has stoked fears of an economic slowdown.
In fact, third quarter GDP growth was recorded at just 6.5 percent, a level not seen since the Great Recession of 2009. China International Capital Corporation, one of the biggest investment banks in the country, has warned that 2019 could be a year of recession for the Chinese real estate market.
“[There are] four feasible paths for policy adjustment next year, including increasing supply, lowering the down payment ratio, relaxing excessive restrictions on mortgage interest rates, and increasing the amount of mortgage loans. Measures to control housing prices could be maintained, but pricing mechanisms and price tracking management should be improved,” according to Caixin Global.
A major property developer, Vanke, also stated that the company should focus on survival for the next three years as the real estate market has reached a turning point. President Xi Jinping is expected to meet U.S. President Donald Trump at the G20 summit in Argentina later this month. If the meeting does not give an indication that the trade conflict will subside in the coming months, the Chinese property market is headed for big trouble.