China's Property Market, Once a Lifeline, Now Carries Economic Risks
SHANGRAO, China – Investors were pouring into this sleepy city in southeastern China until late last year to scoop up apartments as new high-rise projects mushroomed.
Then sentiment turned. Unsold units started piling up and developers began cutting prices. Homeowners fearing a housing-price collapse protested at one sales office in October.
The deepening slump, visible as well in other smaller Chinese cities, illustrates why property sales aren't expected to help bail out China's economy as overall growth slows this year.
In the past, China relied heavily on property investment to patch over weak spots in the economy.
That was especially true in 2015, when a sharp drop in China's stock market and other issues left officials worried about a possible major slowdown. Authorities lowered interest rates and lifted home-purchase limits to steer credit into property, boosting sales and the broader economy.
This time, Beijing is trying to avoid a repeat. Officials express deepening concern with financial risks from years of rising property debt, as well as social discontent in cities where homeowners have much of their wealth tied to property values and young people fear prices have soared out of reach.
They are declining, so far, to expand a key government program that offered cash subsidies to rural villagers to buy apartments in dozens of cities across the country, largely because officials don't want to add more debt to the financial system.
Demographic forces are also starting to dampen housing-market momentum. Slowing urbanization means fewer rural residents are moving to cities, softening demand for new properties, while a graying population means there are fewer young families looking to upgrade homes.
Home prices are falling in some places. In a suburb of Beijing, 29-year-old Zhang Jianhua said he pays two-thirds of his monthly income from a job making soup dumplings to cover his mortgage for an apartment. Prices in his area dropped 20% from last year, and recently, Mr. Zhang joined 200 other homeowners at the central housing ministry to protest.
"I felt like I had no other choice but to protest," Mr. Zhang said. "I've been so upset."
China's property market is still healthy in many areas. Home prices nationwide were up 10.6% in December from a year earlier, compared with 10.3% in November.
In bigger markets like Beijing and Shanghai, housing demand is likely to be sustained by inflows of people looking for better jobs, so long as China's economy doesn't fall into a major recession.
But some economists believe sales figures are getting a temporary boost as developers aggressively push properties in expectation of a worsening property downturn this year. Many developers are facing a mountain of debt coming due in 2019.
And concerns are deepening about the outlook for smaller cities, where population growth is slow or shrinking, economists say.
Smaller cities had recently been the most dynamic markets in the country, making up nearly two-thirds of national property sales last year, compared with one-half in 2016, according to an analysis by S&P Global Ratings.
That is largely due to the cash subsidy program, designed to help rural residents improve their housing and create opportunities for developers. The program contributed as much as a fifth of China's housing sales last year.
It also means many would-be buyers have already purchased properties, taking away demand from the future, said Julian Evans-Pritchard, a senior China economist at Capital Economics, who added that demand for urban housing likely peaked in 2015.
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