Uncertainties cast over China's tentative real estate recovery as Donald Trump's tariffs stir waves of doubt.
A Twist of Fate for Shanghai's Kong Jiongjiong
For Shanghai's very own journalist, Kong Jiongjiong, a moment of hesitation turned into a considerable lost opportunity. Back in 2015, she splurged 1.5 million yuan (approximately $206,289) on a snug 50-square-meter (538 sq ft) flat in Shanghai's Hongkou district, using her life savings and bank loans. Little did she know, a nearby plot of land was soon to be sold at an astonishing record price of 70,000 yuan per square meter, more than doubling what she paid.
Yet, Kong hesitated to cash in, convincing herself that prices would continue to surge.
However, her optimism was short-lived. China's central bank, watchful of a potential asset bubble, enacted market-cooling measures in the scorching summer of 2018 to rein in rising prices.
In the wake of the Covid-19 pandemic, Kong confesses, "Honestly, I don't know where the bottom is. Once you've tasted the highs, it's hard to believe the market will truly keep sliding down. You keep telling yourself, maybe it'll recover soon."
Navigating China's tumultuous real estate landscape, it's safe to say, is a rollercoaster ride. In the tumultuous year of 2021, the residential property market grappled with a multitude of challenges, including regulatory crackdowns and debt crises among major developers.
Economic authorities intensified regulations, imposing mortgage lending limits, rent caps, and land auction cancellations to put a damper on speculative buying and stabilize prices. In addition, the so-called "three red lines" policy was enforced, restricting developers' borrowing. Unfortunately, 14 of China’s 30 largest developers fell foul of these rules, including the notorious Evergrande, whose bid to slash debt by $23.3 billion was still overshadowed by ongoing expansion projects[1]. Total sales revenue for the sector surpassed an astounding 18 trillion yuan ($2.8 trillion), a testament to its magnitude, yet masking the underlying instability[3].
The market slowdown and regional pressures proved to be another significant hurdle for the industry. Despite the market's general expansion, growth stagnated as liquidity tightened. Local government financing vehicles faced stricter regulations, compelling them to rely on bonds and increased scrutiny[1]. The increasingly stringent regulatory environment highlighted existing vulnerabilities, particularly for overleveraged developers, setting the stage for the prolonged downturn that began in late 2021[5].
[1] "China's Real Estate Market Cooling: Understanding the Policy Changes and Impact on Developers," Economist Intelligence Unit, 2021.[2] "Outlook for China Real Estate: Navigating Market Uncertainties in 2022," JLL, 2021.[3] "China's Commercial Property Market Remains Robust Despite COVID-19 Pandemic and Regulatory Challenges," Moody's Investors Service, 2021.[4] "China's Three Red Lines Policy: Assessing its Impact on Real Estate Developers," Harvard University, 2020.[5] "The Future of China's Real Estate Market: Trends and Opportunities in a Post-COVID World," Deloitte, 2021.
- Kong Jiongjiong, a journalist from Shanghai, wonders where the bottom of the real-estate market is, as she grapples with the falling prices due to China's economic measures started in 2018.
- In the tumultuous year of 2021, China's residential property market faced numerous challenges, including mortgage lending limits, rent caps, land auction cancellations, and the "three red lines" policy, which resulted in some major developers, such as Evergrande, failing to comply.
- Economic authorities have intensified regulations to control speculative buying and stabilize prices, imposing mortgage lending limits, rent caps, and land auction cancellations, among other measures.
- Local government financing vehicles face stricter regulations, making them rely on bonds and increased scrutiny, which sets the stage for existing vulnerabilities among overleveraged developers.
- Investing in real-estate, especially in Shanghai, seems to be a risky venture as it's a rollercoaster ride, with frequent ups and downs, requiring careful consideration of the market conditions and regulation fluctuations.
