According to a report from Bloomberg Industry Research, at least 48 million homes in China have been sold before construction completion, indicating that the real estate crisis in China is not likely to be resolved soon.
The number reported by Bloomberg on August 13 exceeds the total housing stock in Germany in 2021, based on presale data from 2015 to the first half of this year. Analysts Kristy Hung and Monica Si wrote that this poses a direct threat to developers’ income, as people may choose to avoid buying presale units in new development projects and opt for purchasing completed or second-hand homes.
The analysts stated that from 2000 to the first half of this year, there has been a shortage of 8.4 billion square meters (90 billion square feet) in completed housing, accounting for approximately 38% of the total cumulative volume. The unfinished rate surged from an average of 17% before 2015 to 47% between 2015 and 2023.
There has been a fundamental shift in preferences among Chinese buyers as well, as existing home sales surpassed new home sales for the first time last year. The report indicates that in the first half of this year, completed homes accounted for 27% of new home sales, compared to only 10% for the entire year of 2021.
The real estate sector in China once contributed a quarter of the GDP during its peak period. However, since 2021, a series of major developers have defaulted, leading to numerous idle construction sites, a stagnant housing market, and impacting not only the Chinese economy but also the wealth of the Chinese people, as a significant portion of household wealth in China is tied up in real estate. Currently, this industry continues to be a major drag on the Chinese economy.
The Chinese real estate sector is facing multiple challenges at present. On August 1, the research center of CRIC released the “Top 100 sales of Chinese real estate enterprises from January to July 2024” report. The report showed that in July, the sales of new homes by large real estate developers in China declined at an accelerated pace. The sales of the top 100 real estate developers in China fell by 20% year-on-year to 279.1 billion yuan ($38.7 billion), a larger decline compared to the 17% in June. The month-on-month sales dropped by 36%.
Economists at Nomura warned in a report on August 1 that the Chinese real estate industry has not yet hit rock bottom. Despite some key indicators showing positive signs, the crisis is far from over.
Nomura cautioned that besides the accelerated decline in new home sales, new negative factors have emerged that may further suppress homebuying demand. Nomura mentioned that Beijing’s recent lowering of mortgage rates (the latest stimulus measure) is like a drop in the bucket.
Data from 30 major cities tracked by CRIC Real Estate Research also shows that in 2023, the annual transaction volume of new homes in China dropped 37% from the peak in 2021, while the transaction volume of second-hand homes reached a record high. CRIC expects this trend to continue this year.