In a bid to curb the housing market frenzy and financial risks, Chinese policymakers initiated a gradual slowdown in the real estate sector three years ago. However, what ensued was a severe property crisis, wiping out trillions of dollars, impacting the broader economy, and sparking widespread protests. This article delves into the crisis through ten impactful charts, illustrating the multifaceted consequences of the property meltdown.
1-Trillion-Dollar Sales Slump: Property sales in China peaked at 18.2 trillion yuan ($2.5 trillion) in 2021. The subsequent year witnessed a staggering 27% decline, with sales projected to decrease by 1.8 trillion yuan in the current year. Experts remain cautious, anticipating further shrinkage in 2024, with developers facing looming liquidity challenges.
2-Broad Spillover: The once-booming property sector, now a drag on economic growth, experienced a 51 billion yuan output reduction in the first three quarters of the year. While a smaller real estate sector is considered beneficial in the long run, its interconnectedness with over 60 sectors in China is causing short-term shocks. The spillover ranges from upstream industries like resources to downstream sectors such as home appliances.
3-Investment Rout: The sales downturn led to defaults by real estate giants, impacting the entire industry. Real estate development investment plummeted by 1.47 trillion yuan in 2022 and continued to worsen in the following months, adversely affecting fixed-asset investment, a key driver of the Chinese economy.
4-Local Governments Earn Less: Local governments saw a significant drop in income from land sales, down 23% in 2022 and another 18% in the first 11 months of the current year. Despite attempts to loosen land sale restrictions, this decline in revenue has prompted Beijing to roll out fiscal stimulus measures, including an unprecedented budget revision and the issuance of 1 trillion yuan in sovereign debt.
5-Developer Bonds Gone: China’s offshore developer bonds, once lucrative investments, have become virtually extinct since the introduction of the “three red lines” policy in 2020. Defaults have surged to $133 billion as of December 11, with offshore investors bearing the brunt of the losses.
6-Market Value Plunge: Chinese property stocks remain in a downward spiral, with the top 10 private real estate builders collectively losing 84% of their market value since early 2020. Lingering gloominess prevails among investors, anticipating further challenges for distressed builders despite policy measures aimed at revival.
7-Consumption Hit: Existing-home prices have dropped 8%, discouraging consumer spending. A 5% decline in prices could result in a significant loss in housing wealth, potentially reducing household consumption by at least 430 billion yuan, according to Bloomberg Economics.
8-Mass Layoffs: The property sector’s meltdown has led to substantial job cuts, with some major developers reducing headcounts by nearly 80% since the implementation of the “three red lines” rules.
9-Shrinking Wealth of Tycoons: The once-wealthy Chinese real estate moguls have seen a substantial decline in their wealth, losing at least $97 billion since the end of 2019, primarily due to diminishing market values of their companies.
10-Sprawling Protests: Over 1,800 real estate-related demonstrations have occurred in mainland China since June 2022. These protests, primarily led by homebuyers and construction workers, underscore the persistent challenges and discontent fueled by the ongoing property crisis. While protests are not uncommon in China, the frequency and scale of these events are indicative of the severity of the situation.
