China’s economic core issue lies in its real estate market. Until recently, real estate still accounted for one-third of China’s total wealth. Currently, many real estate companies in China are facing liquidation, with intense courtroom battles unfolding. According to incomplete statistics, nearly thirty real estate enterprises in China have faced bankruptcy and liquidation applications from creditors. The era of China’s real estate dominance is over.
Since the giant real estate company Evergrande was ordered to liquidate in 2021, the Chinese real estate market has been in turmoil. With debts of $300 billion, Evergrande’s debt restructuring has made no progress, leading to bankruptcy.
Jiali Mong’s parents purchased an apartment from Evergrande, trusting it as China’s largest developer. Soon after, the company called to offer them another service: wealth management. Thinking this was a low-risk, profitable deal, the family invested their life savings, only to face tragedy. Ever since, their circumstances have been heartbreaking.
Following Hui Ka Yan’s arrest, the most affected are the many owners of “unfinished buildings” across Mainland China. It is estimated by multiple Chinese media outlets that Evergrande abandoned around 1.62 million unfinished units, affecting 6 million owners and leaving 6 million victims with no recourse.
Videos have shown that post-Evergrande bankruptcy, the worst affected are not the banks and creditors, but the owners of the abandoned property. They’ve exhausted their savings, paid the down payment, and are now burdened with a 30-year mortgage. They are left without homes, still making monthly loan payments. Owners are burdened with lifelong debt, while Hui Ka enjoys wealth that would take generations to spend. Notable unfinished project Evergrande Yu Hoo Phase Despite recovering billions, Evergrande has not constructed any buildings, leaving a barren land with only a gate and overgrown weeds. With Hui Ka’s arrest, what should be done with the remaining 1.62 million unfinished units?
Evergrande’s bankruptcy marks the beginning of a real estate crisis, shaking the entire Chinese economy as major enterprises collapse one after another. Following Evergrande’s bankruptcy, several other real estate giants in China are facing liquidation orders. Currently, Chinese real estate giant Country Garden Holdings is facing liquidation. According to a Hong Kong stock exchange announcement, Ever Credit Limited, an overseas investor, filed for Country Garden’s liquidation in the Hong Kong High Court on February 27, 2024. The petition has been accepted by the court, with the first hearing scheduled for May 17, 2024.
China Construction Bank (Asia) has sued Shimao Group, seeking court liquidation to recover funds. Shimao Group confirmed the news. On April 8, Shimao announced on the Hong Kong Stock Exchange that China Construction Bank (Asia) Ltd. filed for liquidation on April 5, involving approximately 1.6 billion Hong Kong dollars.
According to Bloomberg, since the real estate crisis erupted, at least 23 Chinese construction firms or related companies in Hong Kong have received liquidation applications from creditors. So far, at least 5 have been ordered to close. Since the onset of the Chinese real estate crisis in 2021, Chinese developers have defaulted on $111 billion in domestic and foreign bonds.
In addition to Country Garden and Shimao Group, other real estate developers facing litigation include Sunac China, Sunlight City Group, China Aoyuan, Jiayuan Group, Longfor Group, Xuhui Group, and Oceanwide Holdings.
US media reports point out that China’s real estate has collapsed, with the debt crisis entering a new stage of tension turning into courtroom battles between developers and creditors over debt restructuring plans, leading to unimaginable liquidation consequences.
Why has this state of decline emerged? The root cause lies in China’s long-term excess construction in the real estate market, resulting in a severe oversupply of housing. According to China’s current population ratio, if China has 1.4 billion people, how many homes should be available for 1.4 billion people? The existing housing far exceeds the population ratio. In a national meeting last February, China’s Ministry of Housing and Urban-Rural Development revealed that China currently has 600 million housing units.
Considering China’s population ratio, with each building accommodating six households, 600 million housing units could potentially host 3.6 billion households. Given this surplus housing, Chinese people are well aware that constructing houses has been lucrative. Over the past two decades, mainland Chinese real estate developers and officials at all levels have amassed considerable wealth through constructing homes. Experts attribute this to “corrupt politics driving officials to profit from real estate, leading to overbuilding.”
As new homes remain unsold, real estate developers nationwide are employing various innovative and often deceptive sales tactics to entice buyers. These tactics have resulted in peculiar societal phenomena. For instance, in Harbin, people were paid to stand in line outside a real estate sales office, creating the illusion of high demand and driving public interest. This method is used to attract actual home buyers.
In the current context of surplus unsold housing, real estate developers resort to employing “crowd actors” to create the facade of active sales. This widespread practice, with individuals posing as potential buyers in queues, orchestrates a farcical scenario visible only in mainland China.
The use of paid actors pretending to be buyers has become commonplace in several cities, further illustrating the deteriorating conditions of China’s real estate industry. Instances like these, reflecting a myriad of social abnormalities, highlight the erosion of societal morals due to constant deceit by the Chinese Communist Party (CCP).
Another astonishing spectacle indicative of the real estate industry’s decline in China is the “buy one, get one free” promotions. During the Qingming Festival, Zhengzhou in Henan Province launched a promotion where buying a 77-square-meter new apartment would entitle the buyer to a free 108-square-meter existing home in Yantai, along with a 8-day cruise trip and a chance for a 3-day tour to Yantai. This initiative gained immediate attention, becoming a hot topic in the real estate market.
The “buy one, get one free” promotion sparked discussions among the Chinese population, with some questioning how properties in the prestigious capital city of Beijing have come to such a condition, requiring such promotions.
Many citizens, lured by promises of government subsidies for unsold housing, found themselves deceived due to unfulfilled incentives. Various provincial governments promised housing purchase subsidies to stimulate sales, contributing to a series of misleading sales tactics. Residents who bought into this propaganda found themselves unable to access the promised subsidies, resulting in public outcry and dissatisfaction.
Amidst the public outcry and media coverage of various grievances, municipal authorities resorted to employing excuses like “financial difficulties” to evade accountability. Official responses cited financial constraints as reasons for delayed disbursements, leaving property owners disillusioned and stranded with unfulfilled promises.
Stories of victims like Mr. Luo, who was enticed by promised subsidies only to realize he had been duped, reveal the sinister practices employed by developers to push sales. The exploitation of subsidies was seen as a means to attract buyers, ultimately leading to disappointment and distrust among customers. Facing such predicaments, aggrieved individuals resorted to lodging complaints with regulatory bodies, exposing the fallacy of government-led housing incentives.
The widespread dependence of local governments on real estate revenues for financing, propels an intricate web of inherent systemic corruption. The intimate link between real estate and local finances is vital for understanding the profound implications of the real estate industry’s decline on China’s economic stability.
If real estate constitutes one-third of China’s total wealth, then real estate economics significantly shape the Chinese economy. In reality, real estate is a primary revenue source for the CCP regime. Local governments heavily rely on real estate as their primary revenue source. Any downturn in property prices directly impacts land values, triggering a ripple effect on local government land finances. A decline in land revenue results in fiscal deficits for local governments, obstructing infrastructure investments due to financial constraints. Consequently, various local governments are reluctant to witness property value declines as they rely profoundly on this sector. The CCP’s extensive dependence on real estate and land-related revenues is unmistakable. In recent years, the profound adjustments in the real estate market have led to substantial declines in revenues, exacerbating fiscal imbalances for local governments.
A netizen ironically commented, emphasizing that local Chinese finances heavily rely on “squeezing surplus value from the people through real estate.” The intricately entwined relationship between urban developments, municipal infrastructure, and public sector salaries with land finances accentuates the precarious situation wherein local governments find themselves due to the real estate industry’s collapse.
Recently, Steven Mosher, Director of the Population Research Institute in the US and a China expert, highlighted in an Epoch Times interview how the Chinese real estate industry is currently collapsing. As one of the first social scientists granted access to observe China in 1979, Mosher’s insights underscore the severe repercussions of the real estate market’s collapse in China. He contends that corrupt political practices led officials to exploit real estate for personal gains, resulting in excessive construction. He stated that approximately 70-80 million apartment units remain vacant in China. Even if China were to halt new construction, these surplus units would take an entire generation to absorb. Therefore, Mosher asserts that the CCP’s colossal Ponzi scheme reliant on real estate is now crumbling before our eyes.
Mosher points out that the CCP’s tactics in rural China involve naked land grabs and theft, while their strategies in urban regions, albeit more concealed, aim for the same result: impoverishing the populace to enrich the Party. While the CCP boasts of pulling China out of poverty, Mosher believes that it is the Chinese people themselves who have uplifted their living standards. According to him, the Chinese are the most diligent and intelligent population on earth. Given a mere opportunity, they improve their surroundings and elevate their living standards.
In light of the declining population trend in China, some projections indicate a significant drop in the country’s population. This demographic shift suggests a decreased demand for housing over the next 30 years. Considering the aging population, housing demands are expected to diminish, leading to a potential continued decline in property prices. This scenario mirrors one of the numerous setbacks faced by the real estate industry.
In a bizarre trend, some regions now allow “old-for-new” housing exchanges. In Zhengzhou, Henan Province, the government introduced a plan where residents could sell old homes and buy new ones, promoting a free market exchange of housing units. This initiative emerged to address excessive new construction, as seen in declining new home sales in key cities.
These examples illustrate various facets of China’s real estate industry’s decline and impending collapse. Not only does real estate deterioration impact economic stability, but it also directly influences government finances. Therefore, the implications extend beyond the immediate industry to broader economic structures.