During China’s slow housing crash, there were brief periods when prices stabilized, raising hopes that the years-long slide was finally over. Each time, these respites proved short-lived – pauses before the market resumed its decline.
After property prices stabilized in several of China’s biggest cities in the first months of the year, the market finds itself at a crossroads again. Analysts and economists are divided on whether this constitutes a low point for a downturn that has eroded much of the savings of the nation’s middle class or simply another lull before the next stage of decline.
Average prices of existing homes in China’s so-called tier 1 cities – Beijing, Shanghai, Shenzhen and Guangzhou – rose 2% between February and April, according to data compiled by UBS, the Swiss financial institution, and Centaline, one of China’s largest real estate brokerages. This increase follows a 38% drop since 2021 which has impacted the Chinese and global economies.
The toll of the crisis has been heavy in the country and has serious consequences abroad. Many Chinese families had invested most of their savings in apartments, viewing real estate as a safe bet for building wealth – only to discover, to their anger and dismay, that this was not the case.
Timothy Liu, an office worker in China’s north-central Henan province, is one such buyer. He spent around $76,000 on a small apartment in his hometown in 2021, only to see its value drop by almost a third. Like many Chinese, he lost his job two years ago and struggled to find another one as the economy slowed, in part because of the real estate downturn.
His only consolation is that he paid cash for a modest house in a cheap neighborhood rather than borrowing money to buy it in a big city. “Even though I managed to avoid taking out a huge mortgage in a tier-one city, the value of my apartment still lost almost 30 percent – I’m really upset about that,” he said.
Mr. Liu’s predicament is far from unusual. As home values have fallen, consumers have cut back on spending on cars, cosmetics and other non-essential products. With factories unable to sell enough goods domestically, China unleashed a flood of exports, leading to trade surpluses worth billions of dollars.
Optimistic analysts now see a turning point, particularly in Shanghai and Shenzhen. Landlords still can’t charge enough rent to cover their mortgage payments, but the gap has narrowed significantly. Shanghai has also made it much easier for buyers to borrow through a municipal housing fund that offers very cheap mortgages.
“You’re actually seeing interest rates fall,” said Karl Choi, head of Greater China real estate research at Bank of America Global Research.
Mr. Choi predicted that prices in major Chinese cities would stabilize in the second half of this year and that the recovery would spread to smaller cities in 2027.
In percentage terms, China’s real estate market has fallen almost twice as much as that of the United States two decades ago, when the U.S. real estate collapse caused banks to fail and triggered a global financial crisis.
Many Americans had taken out large mortgages with little or no down payment, and they could no longer make their payments once prices stopped rising and started falling.
Chinese banks, by contrast, have always required large down payments, which urban households can afford because they typically save up to two-fifths of their income.
These large deposits protected the Chinese banking system. Prices have to fall significantly before a mortgage is worth more than the house behind it.
However, limiting mortgage losses is not the same as reviving the real estate market.
Other analysts question whether there are any real green shoots, pointing to the 90 million empty or unfinished apartments and the long delays sellers face in finding buyers.
Prices also briefly stabilized a year ago, before plunging again.
Furthermore, the four Tier 1 cities represent only 6% of China’s population, and prices have fallen even more sharply elsewhere.
In recent years, China’s major cities have allowed more apartments to be sold to residents of smaller towns. “It attracted more people from other parts of the country,” said John Lam, head of Asia real estate research at UBS.
This migration emptied small towns. In Yancheng, a city about 200 miles (320 km) north of Shanghai, a resident who gave only his last name, Shao, said property prices had halved in recent years as people moved to bigger cities.
“Residents are no longer keen to buy a house here – many have moved to cities further south, such as Suzhou or Shanghai, to buy property and are not returning,” he said.
As prices have fallen in China since 2021, the price has fallen not on banks but on homeowners, who have seen much of their equity disappear.
The National Survey of Chinese Household Finances, conducted every two years by the Southwest University of Finance and Economics in Chengdu, China, found that the average net worth of urban households fell to $130,000 in the summer of last year, from $163,000 two years earlier.
Even these figures could underestimate the damage. The survey found that homeowners generally estimated their homes had lost only a fifth of their value since the peak.
Surveys consistently find that Chinese households hold three-quarters of their savings in real estate, often buying an additional apartment as an investment rather than buying stocks, bonds or mutual funds.
A quarter of Chinese urban households own two or more homes, compared with about 4% of Americans, said Sam Radwan, chief executive of Enhance International, a Chicago-based global real estate consulting firm. Many Chinese families cannot find tenants for these investment apartments due to the glut of vacant housing. Even when they do, the rent is often much less than the monthly mortgage payment.
For Mr. Liu, in his 30s, the decline in the value of his apartment wiped out all the savings he had accumulated since college.
“I feel like I’ve worked for nothing for a decade,” he said. “I can only try to comfort myself by thinking that if I had bought a house and moved to a first-tier city back then, the losses I face today might be equivalent to working for nothing for 30 to 50 years.”
Ruoxin Zhang contributed to the research.
