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China’s Property Crisis Reaches Tipping Point As Xi Green-Lights Price Wars
China's letting the market determine the clearing price for new homes.
That's a new idea for them. Sort of.
As China urbanized, mass migration from the countryside to the nation's cities pushed up home prices, imperiling affordability. The Party's solution -- or one of them anyway -- entailed capping prices on so-called "pre-sale permits." Long story short, if you were a developer and you wanted to sell units in a new project before they (the units) were finished, you were obliged to keep pric
They must have put Gob in charge of their development strategy. Next time on Arrested Development…these property developers may have committed some light treason.
One way to determine when housing prices are starting to bottom is when rental yields finally begin to make sense. They haven’t, in China, for years. An article surveying rental yields around China noted them in the 1%-2% range. But that article was in bubble-year 2018…. and it turned out it was discussing gross yields, not net. Landlords were actually losing money monthly and accepted it because their investment case was based on appreciation. A 2022 article noted hopefully that the housing slump might be ending because rental yields were now exceeding demand deposit rates (!). I personally don’t know any landlords who would be happy if their rentals returned “as much” as their checking accounts. I don’t know where that picture stands today in China and, of course, rental yields being “sensible” also depends on whether rents (and OER) are themselves reasonable in relation to incomes and vacancies. China housing has quite a way to go, I’m afraid.
The idea of the central government enabling local govts to buy apartments to be affordable housing was being talked about some months ago, and I think in the same breath as the idea of having the central govt take on or backstop some of local governments’ increased debt load.
It is interesting to see local governments lift price controls on new apartments, triggering those prices to start falling rapidly as desperate developers liquidate into poor demand, with those LG buying programs not in place or seemingly close to being ready.
Do you have any information on the commercial market in China? I live in an outer suburb of one of the big cities, and we are surrounded with half/wholly empty office buildings with dozens still under construction. There are a lot of apartment buildings in the same state as well; units similar to what we rent were selling for 3 millionRMB a year ago, now they go for about half that.