In the midst of continuous decline in the prices of second-hand homes in the top 100 cities in mainland China, the city of Shanghai saw an increase in the volume of second-hand home transactions. While the prices of new homes in these cities are slowly rebounding, potential homebuyers are pessimistic about the future prices, with potential sellers even willing to sell at a loss. Experts analyze that real estate in China has shifted from being an appreciating and value-preserving asset to a risky asset, leading to many property owners rushing to cash out and transfer their assets.
According to data released by the China Index Research Institute on December 1st, the prices of second-hand residential properties in the top 100 cities in China have been declining continuously for 43 months, with a 0.94% monthly decrease and a 7.95% decrease year-on-year in November.
In particular, in November, the prices of second-hand residential properties in first-tier cities saw a 1.15% monthly decrease and a 5.62% year-on-year decrease. In Shanghai, the price of second-hand homes dropped by 1.24%, surpassing the average decline in first-tier cities.
On the other hand, data from Anjuke shows that the total volume of second-hand home transactions in Shanghai in November reached a new high in nearly 7 months, making it the third-highest month in terms of transactions this year, indicating a potential revival in the housing market.
However, renowned economist David Huang, currently residing in the United States, expressed to Dajiyuan that the situation in the Shanghai second-hand housing market where transaction volume is increasing while prices are decreasing is not a healthy revival. Huang believes that a healthy revival should involve both transaction volume and prices rising simultaneously.
He points out that the disparity between transaction volume and prices is a typical sign of owners rushing to sell their properties, which indicates a “passive clearance.” This reflects that property investors are experiencing “emotional collapse and expectation collapse.” Additionally, some buyers are taking advantage of falling prices to “bottom fish,” demonstrating an oversupply far exceeding demand.
Sun Guoxiang, a professor at the Department of International Affairs and Business at Nanhua University in Taiwan, also believes that the rise in second-hand home transactions in Shanghai does not signify a market recovery but rather “passive transactions under pressure from falling prices” as sellers are eager to offload their properties due to significant price declines.
According to a survey conducted by Morgan Stanley-AlphaWise on the Chinese real estate market in July of this year, among potential homebuyers, 33% are bearish on the future price trends in the next 12 months, 51% may consider buying, and only 16% are highly likely to make a purchase.
Among potential sellers, 44% are planning to sell their properties within the next 6 months, and 56% are willing to sell at a loss. This includes 42% accepting losses of up to 10%, 12% accepting losses of 10% to 20%, and 2% willing to sell without considering losses, seeking a quick sale.
Sun Guoxiang indicates that these data show extreme pessimism among buyers and panic-driven selling among sellers, highlighting the shift of real estate from being viewed as a value-preserving asset.
Huang mentioned that a large number of homeowners are “quickly liquidating their houses,” especially in Shanghai, where a considerable portion of the population is transferring assets overseas.
He believes that the idea of using houses as investments is now being questioned, as rigid demand is also shrinking. Real estate in China has transitioned from being an asset for appreciation and preservation to a current asset risk.
Huang stated, “The middle class in China is gradually realizing that there may be risks in putting all their money into real estate for a lifetime, and they need to be cautious.” Many middle-class families are reconsidering their “asset allocation,” including increasing holdings in “gold and overseas assets.”
Data from the China Index Research Institute shows that the average price of new homes in the top 100 cities in China rose by 0.37% in November on a monthly basis and by 2.68% year-on-year. This is mainly attributed to the introduction of high-end housing projects in cities like Shanghai, Chengdu, and Hangzhou. However, despite structural price adjustments in the new housing market, sales market pressures still persist.
According to Huang, the government’s focus in real estate policies has not been on reducing taxes or increasing rental subsidies for middle- and low-income families. Real estate transaction taxes have not been substantially reduced, and land prices remain unchanged, making it unlikely to truly stimulate the real estate market.
Sun Guoxiang believes that as residents’ wealth shrinks, consumer spending decreases, local finances face pressure, and the balance sheets of real estate companies and banks deteriorate, the long-term trend of the mainland China housing market is characterized by “shrinking transactions, gradual price drops, asset repricing, entering a period of adjustment lasting more than 10 years,” where homes are no longer seen as “nationwide investment assets.”
Huang pointed out that cities such as Shanghai and Beijing experienced “very fierce” property price increases in the past, and with the current contraction of the housing market, a new round of asset reassessment, it is likely that property prices peak will drop by approximately “30% to 40%,” returning to levels seen around 2015 or 2014.
He believes that apart from the real estate markets in the Pearl River Delta, Yangtze River Delta, and the Bohai Rim region, most areas in the other 31 provinces and cities in China may face the risk of “collapse,” which would deal a “significant blow” to the assets of the vast middle-class families. Consequently, societal expectations for the future may turn “even worse.”
“The structural differentiation is becoming more and more serious, with the richer getting even richer and the originally better-off areas now facing decline,” Huang stated.