As the pockets of Chinese home buyers continue to tighten, many are turning their attention to Hekou, hoping to buy homes there at bargain prices and embrace a “lying flat” lifestyle. As the real estate crisis in China persists, the housing prices in Hekou are moving southward, posing a new threat to China’s already struggling economy.
According to reports from Reuters, the average price of new homes in 70 major cities, including Beijing, continued to decline for the 14th consecutive month in August. Even in the economically vibrant south, housing prices have seen a drop, sparking intense discussions on social media about the expanding deflation in the real estate market. Search volumes for online hot topics like “Hekou-fication” and “Hekou housing prices” have reached tens of millions.
In 2021, Wendy Ye and her newlywed husband purchased an apartment in Huizhou for 11,000 yuan per square meter. Since then, the value of their property has plummeted by 45.5%, dropping to 6,000 yuan per square meter.
This has plunged them into financial difficulties, putting immense pressure on them. Moreover, the hefty monthly mortgage of 9,000 yuan for their second apartment in Shenzhen as teachers has made their situation even more challenging. To make matters worse, Wendy Ye recently experienced a salary cut, making life increasingly difficult. She is contemplating borrowing money from her parents to alleviate some of the financial pressure.
“I try not to dwell on how much our assets have depreciated, but the mortgage pressure is immense,” she told Reuters.
Following the government’s crackdown on excessive debt among developers in the summer of 2020, China’s average property prices have plummeted by nearly 30% since reaching their peak in 2021. This has led to severe funding shortages, resulting in unfinished projects, breach of contracts, and even public protests from homebuyers, severely impacting market sentiment.
Chinese households typically view housing as their largest investment, and the continued slump in real estate is eroding the wealth of Chinese families, dampening domestic demand and harming China’s economic growth.
Retail sales, a key indicator of consumer spending, only grew by 2.1% in August, compared to around 8% before the outbreak of the COVID-19 pandemic.
Lynn Song, Chief China Economist at ING, stated, “If the biggest asset of households is depreciating every month, it’s hard to expect them to have confidence to consume.”
Analysts warn that the sharp declines in new and existing home prices in the south could trigger a chain reaction, affecting China’s largest provincial economies, including Guangdong, where many of the country’s largest developers are headquartered. Difficulty in selling homes will significantly impact sales, limiting investment plans for these developers.
Ma Hong, Senior Analyst at GDDCE Research Institute, said, “A 10% annual decline in overall real estate investment in China could directly drag down 1.5% of GDP.”
The weakening investment sentiment will also slow down the speed at which developers purchase land from local governments. Ma Hong mentioned that reduced land sales will further weaken the financial condition of local governments, especially affecting funds available for local economic investment.
In recent years, due to the decline in the mining and industrial sectors and population outflow, once vibrant coal city Hekou has become China’s cheapest real estate market. According to data from Anjuke, a leading real estate pricing platform in China, the average housing price there is 1,878 yuan per square meter.
Some people still see the affordable housing in Hekou as a paradise for young people with meager wages. On social media, topics like “buying a home in Hekou for 30,000 yuan” and “coming to Hekou to lie flat” remain popular.
However, in the south, low housing prices are not seen as a motivator for people to buy homes; it is a sign of a broader economic downturn, posing a dangerous signal for homebuyers.
In Guangdong, cities like Jieyang, a small textile center, and Qingyuan, a logistics hub, have seen housing prices plummet to Hekou levels. Local real estate agents told Reuters that in Jieyang, a 132-square-meter apartment is being sold for 238,000 yuan (1,831 yuan per square meter), while a 110-square-meter unit is priced at 148,000 yuan (1,345 yuan per square meter).
According to Anjuke’s data, the average housing price in Qingyuan has dropped by 23.9% since the end of 2019, pre-pandemic and before Beijing’s crackdown on developer debts.
“Qingyuan is showing similar signs as Hekou,” said a 20-year-old resident surnamed Yu from Qingyuan. “The city’s reliance on a single industry and lack of employment opportunities have led to population outflow, creating a vicious cycle. This is seen as a trap, not a utopia, in the eyes of the youth.”