China Property Flare-Ups Resurface as Crisis Enters Fifth Year

As we approach the fifth anniversary of China's property market crisis, it's clear that the sector is far from recovered. Despite government interventions and policy changes, the market continues to face challenges, with flare-ups resurfacing and casting doubt on the sustainability of the recovery. In this article, we'll delve into the factors contributing to the ongoing crisis and explore the potential solutions to stabilize the market.

The property market crisis in China can be traced back to 2019 when developers, such as SUNAC, embarked on ambitious projects, only to face financial difficulties and project delays a few years later. The "Three Red Lines" policy, implemented in 2021, aimed to reduce developers' debt levels but instead led to a liquidity crisis and project delays. In response, authorities shifted their focus to supporting the sector, injecting funds and easing restrictions. However, the market remains fragile, with developers struggling to clear unsold inventory and homebuyers hesitant to invest.



One of the primary challenges facing the property market is the decline in consumer sentiment and demand. Despite government efforts to stabilize the market, homebuyers remain cautious due to falling prices and developer defaults. In August 2024, primary housing prices in tier-one cities fell by 4.2% year on year, eroding homebuyer wealth and confidence. This negative wealth effect has led to a supply glut, with developers struggling to clear unsold inventory. To address this, the government has introduced measures such as a RMB 300 billion relending facility for social housing and urban village redevelopment policies. However, these policies alone may not be enough to restore confidence, as developers' liquidity buffers continue to shrink.

Another factor contributing to the property market crisis is the shift in developers' financial management strategies. Many developers relied on pre-sales to fund projects, leading to a cycle of debt accumulation and unsold inventory. This high-churn strategy involved siphoning sales revenues from one project to prop up others, resulting in a cascade of unfinished buildings and shattered buyer confidence. The crisis has led to a shift in focus towards quality over quantity, with developers increasingly targeting higher-tier cities and focusing on premium-quality residential products. However, this shift may not be enough to address the underlying issues in the property market.

To stabilize the property market and boost consumer confidence, government interventions and policy changes have been crucial. In August 2023, authorities eased restrictions on first-home buyers, lowered existing first-home loan rates, and extended tax incentives. The mortgage interest rate for first-time buyers was set at least 20 basis points over the loan prime rate (LPR). These measures have led to a surge in real estate market activity, with the total sales of the country's top 100 real estate developers surging 24.8% month on month in September 2023. However, it remains to be seen whether these policy changes will be enough to sustain the recovery in the long term.

In conclusion, the ongoing property market crisis in China is a complex issue with multiple contributing factors. As the crisis enters its fifth year, it's clear that government interventions and policy changes alone may not be enough to stabilize the market. Developers must also adopt more sustainable financial management strategies, and homebuyers must regain their confidence in the market. Only through a concerted effort from all stakeholders can the property market crisis be effectively addressed and the sector be restored to health.