In 2009, Bella Zhao exchanged an old rural home and a small piece of farmland for five apartments and two storefronts. At the time, she thought she had hit the jackpot. However, after several years, the Chinese real estate market plunged into a prolonged crisis, and she realized that the “lottery” could no longer be cashed in, with her owned apartments sitting vacant with no tenants and rent-free.
According to a report by The Wall Street Journal on April 23, 2009, real estate developers led by Wanda Group moved into a sparsely populated, snow-covered village in Jilin Province. Wanda planned to invest $2.8 billion to turn the area into a high-end resort destination with skiing slopes, golf courses, hunting grounds, and a five-star hotel. The developers offered new apartments to locals in exchange for their old homes.
Back then, a teenager named Bella Zhao was set to inherit new apartments in place of her family’s old house.
Today, Bella Zhao’s five apartments remain empty, with only one storefront leased. The once ambitious development project stagnated years ago, failing to deliver the promised tourism prosperity. Mrs. Zhao is feeling desperate and has even offered to lease out the apartments for free as long as tenants agree to pay bills and management fees.
“But no one wants to live there, even for free,” she said. “Everyone still living in town has their own properties.”
The real estate industry plays a significant role in the Chinese economy, accounting for about 60% to 70% of household wealth. However, in recent years, the industry has been in crisis, with well-known developers like Evergrande and Country Garden facing defaults or breaches of contract, leading to a steep drop in property sales and dampened buyer sentiment.
According to financial news outlet Barron’s, there are currently millions of completed but unsold houses in China, with a housing department official even suggesting there could be over a billion unsold units.
Head of the EU Chamber of Commerce in China, Joerg Wuttke, was interviewed by CBS’s “60 Minutes” in February and when asked about the estimated number of vacant houses in China, Wuttke responded, “The entire population of Germany, 82 million people, could move in here tomorrow, and there would still be 80 to 90 million apartments empty and unfinished.”
Last year, Agence France-Presse reported on the abandoned Guobin Towers near Shenyang. These luxurious villas, initially planned by Shanghai property developer Greenland Group and started construction in 2010, now only house cattle and sporadic adventurers. The project, known as “Guobin Towers,” was abandoned two years later. Today, these crumbling estates sit deserted, with rows of eerie buildings resembling a deserted cityscape, showcasing the severity of the real estate crisis in China.
A farmer surnamed Guo told AFP, “This is all because of corruption by the authorities. These (houses) could have sold for millions of dollars each, but not a single one was bought by the wealthy.”
The Guobin Towers are just one of many abandoned development projects scattered across China, highlighting the escalating real estate crisis. AFP notes that “ghost cities” like the stalled residential areas near Shenyang have become part of China’s landscape.
The Chinese real estate market has been in a slump for years. Initially, despite declining sales, property prices remained resilient. However, according to data from real estate agency CRIC, by 2022, property prices in some of China’s most developed cities began to drop, with market values evaporating by one-fifth.
“When property prices started to fall, I felt uneasy,” said 26-year-old Bella Zhao to The Wall Street Journal. “I felt like my life plans were disrupted.”
Since then, there hasn’t been much reprieve. In the first quarter, new home sales for the top 100 developers in China dropped by 47.5% compared to the same period last year, reaching the lowest levels on record. In March, existing home prices in China’s most developed cities fell by 7.3% year-on-year, marking the most severe decline since the government began releasing data in 2011.
These issues have eroded the confidence of many middle-class Chinese in the real estate market, further impacting demand and posing additional risks to the overall Chinese economy. Bloomberg reported that up to 70% of household assets are invested in real estate, stating that “a 5% decline in property prices would lead to a loss of RMB 19 trillion (USD 2.7 trillion) in housing wealth.”
According to Barron’s, the worst-hit areas are no doubt the lower-tier cities. Their primary struggle lies in oversupply – too many houses and too few potential buyers.
By the end of 2020, the Chinese real estate market began to shrink, with the deterioration accelerating in third and fourth-tier cities. Purchases slowed across the country, exacerbating the oversupply issue, especially in smaller cities.
Standard & Poor’s analysts stated in a recent report that they expect sales in lower-tier cities to drop by another 9% in 2024, even with sellers lowering prices to make sales.