In China, homebuyers who went all in now want way out
China is trying to cool its costly and dangerously debt-ridden housing market, where high prices and go-go levels of borrowing and spending are increasingly seen as a national threat.
But as the troubles of a major property developer and its $300 billion mountain of debt drive a government effort to contain the peril, Beijing risks hurting a major driver of its crucial economic growth engine: homebuyers like He Qiang.
He was so optimistic about property in China that he bought an apartment from that property developer, China Evergrande Group, then became a real estate agent, selling the company’s apartments to hundreds of other families.
“It was the peak of Evergrande’s glory,” He said.
He is much more pessimistic these days. He, who is from the southern city of Yueyang, has yet to move into his apartment because Evergrande has stopped construction. So many other people are nervous about buying homes, he said, that he’s considering going back to selling cars.
“People aren’t in the mood to buy property anymore,” He said.
The real estate boom that once attracted young professionals like He is experiencing a dramatic overhaul. At one point, buying was so frenzied that properties would sell out within minutes of being offered. Speculation sent prices soaring. Real estate grew to provide more than a quarter of the country’s economic growth by some estimates, with homes becoming the main savings vehicle for Chinese families.
Nearly three-quarters of household wealth in China is now tied to property. The loss of confidence in the market could spill over to lower sales of cars and appliances, further hurting the economy. Already, weak retail sales in China have signaled that consumers are feeling increasingly insecure. As more buyers shy away from home sales, experts say Beijing’s decision to intervene in the market and curb debt may risk overall growth.
“We are indeed seeing a very serious slowdown in the property market, with falling prices, sales and construction activity, and this is likely to drag down economic growth in the next couple of quarters,” said Arthur Kroeber, managing director of Gavekal Dragonomics, an independent economic research firm.
Evergrande was once a paragon of China’s real estate boom. More recently, it has shaken global markets with news of a possible collapse. It has missed several key payments to foreign investors in recent weeks. On Monday, it missed another round of interest payments on two U.S. dollar bonds, a person familiar with the matter said, requesting anonymity because the information is confidential. Waiting for a lifeline, it halted its shares last week and announced the potential sale of a lucrative unit.
China’s 100 biggest real estate companies are expected to report that sales in September plummeted by over a third compared with a year earlier, according to China Real Estate Information Corp., an industry data provider. Fantasia, a luxury property developer, defaulted last week, sending shock waves through the financial markets.