Empty apartments in China show the impact of the housing crisis
China’s property market is in the midst of a protracted crisis that government measures have been unable to overcome. The market is experiencing a sharp decline in sales and a reduction in investment activity. These trends are developing against a backdrop of an oversupply of property – empty apartments have been unable to find new owners for a long time. Some experts point out that these apartments could accommodate 3 billion people needing housing. However, according to Hé Kěn, who used to work for China’s National Bureau of Statistics, such a figure is exaggerated, as the existing number of apartments cannot accommodate more than 1.4 billion people.
An overview of the local property market
Until 2021, real estate was one of the key sectors of the Chinese economy. The crisis began after the largest company in the market, China Evergrande, filed for bankruptcy. The company had 1,300 property projects in 280 cities. The company was also involved in the following areas:
– capital management;
– electric vehicle production;
– food production.
At the time, its debts exceeded USD 300 billion. To settle with investors and suppliers, China Evergrande began actively selling its assets. However, it was unable to cope with the new rules for developers and the size of its commitments and began to cut prices on real estate, including apartments. This caused problems for other local developers, forcing many of them to declare bankruptcy. The remainder continue to operate in the market, teetering on the brink of default.
In August 2023, the total area of unsold housing in China was 648 million square metres. This is equivalent to about 2.7 million homes, according to Reuters. According to official statistics, investment in property construction in the first seven months of 2022 fell 8.5% year-on-year to about USD 927 billion. Investment in residential buildings totalled around USD 705 million, a fall of 7.6%.
The number of units under construction also fell:
– the area under construction fell by almost 7% to 7,996 million square metres;
– the housing area under construction fell by more than 7% to 5,630 million square metres;
– the housing area under contract fell by 2% to 415 million square metres.
It is worth noting that China’s economic situation improved slightly in early 2023 when the government lifted strict restrictions to prevent COVID-19. Experts were optimistic at the time, but by the second quarter, it was clear that momentum was not improving. Demand remained low, and unemployment continued to rise. The ongoing crisis in the property market has exacerbated the situation. Despite falling prices, the number of empty homes continues to increase. At the same time, the Chinese government is keeping quiet about the problems, although experts believe that the local economy is stagnating.