Onur Türkmen*
If there’s a place where the saying “settling down” is taken literally, it’s China. No one easily gives their daughter’s hand in marriage to a man without a house! In China, a house holds a significant place both economically and socially. According to Chinese traditions, without a house, getting married is almost impossible, so families save money throughout their lives to buy their sons a house. Additionally, the young man takes out a loan and enters into debt for about thirty years. Therefore, real estate is central to daily life. One of the first questions any Chinese friend will ask you is, “How are real estate prices in your area, and what is the cost of a good house?” I even witnessed a Chinese friend of mine, whom I traveled with in Greece, inquire about the price of the Temple of Apollo.
One of the most talked-about topics in 2023 was the Chinese economy, especially the real estate crisis in China. Collapsing real estate companies and half-finished massive housing projects were in the headlines. Although some were surprised, this situation was somewhat expected.
Apart from its social significance, real estate also holds great economic importance. We can say it’s the only sensible investment in China. The Chinese currency, Yuan, is not “convertible.” By law, a Chinese citizen can only buy a maximum of 50,000 dollars annually, and that too if they have a valid reason. Therefore, investing in foreign countries is difficult.
On the other hand, Chinese stock markets are highly volatile and are not consistently rising over the long term like the U.S. stock markets. While the Chinese economy grew fourfold from 2002 to 2018, if you had invested one dollar in the Chinese stock market, considering inflation, your dollar would still be worth one dollar. In contrast, house prices in the same period quadrupled. The price per square meter in Shanghai’s Bund area exceeded 30,000 dollars. Thus, real estate turned into an investment tool beyond a basic necessity. The fact that 70% of Chinese household wealth and 50% of household debt is related to real estate clearly shows this.
Initially, everyone was happy with this system. Those who bought houses were making money, believing they made a good investment, and comfortably setting up their homes. One of the happiest parties in this was the state. The real estate sector became the “porter” of GDP growth, considered the most sacred number in China. Estimates suggest that the real estate sector accounts for about 25 to 30 percent of the entire Chinese economy. Hence, as we stepped towards a crisis, everyone played the three monkeys until the wheel could no longer turn.
If you’ve visited China, you might have noticed massive empty housing projects along the highways. These were actually the clearest indicators of the crisis. Some estimates suggest that there were up to 80 million unused properties. However, due to the astronomical rise in real estate prices, a significant portion of the population found it difficult to afford property, leading to many young men remaining unmarried.
The cooling measures in the real estate market were foreshadowed by Chinese President Xi Jinping’s statement at the end of 2016, “Houses are for living in, not for speculation.” Especially in major cities, the government gradually made it more difficult to purchase real estate for investment purposes. They restricted loans and increased down payments. The goal was to cool down the real estate sector, but this also meant slowing down the economy. Local governments, reliant on land sales for revenues (about 42% of their total income), which funded other major investment projects and boosted provincial GDPs, were not very eager to implement these directives from the central government. In 2023, land sales dropped by approximately 40% compared to 2021. Consequently, restrictions were relaxed in many provinces.
But now, the system is clogged. Millions of empty houses, falling real estate sales, and declining prices show the system’s unsustainability. Two of the three largest real estate companies have practically collapsed, unable to pay their debts. The total debts of Country Garden and Evergrande are estimated to exceed 500 billion dollars. The possibility of falling real estate prices brings to mind the economic scenario of “Japanification” of China. In the 1990s in Japan, rapidly falling real estate prices led to a decrease in household wealth and consumption, triggering a crisis that persists to this day.
A Social Media Story
In China, many companies are unable to deliver the houses for which they received down payments, causing societal unrest. Increasingly visible on social media are those saying, “If that’s the case, then we won’t pay our mortgages either.” One of the popular topics in recent weeks on Douyin (the Chinese version of TikTok) was the story of the couple Liang Liang and Li Jun from Henan. After paying a down payment of 450,000 yuan (about 140,
000 dollars) for a house they bought in Zhengzhou, the capital of Henan, for 1 million yuan, they started paying monthly mortgage installments. The family was living on a tight budget as they were also paying rent at the same time. After work, Liang would drive for Didi (China’s Uber) to make extra income. During this time, the couple had a baby and were sharing their day-to-day experiences on their social media accounts.
Liang Liang and Li Jun started a social media campaign to receive the apartment left incomplete by the contractor.
Unfortunately, things didn’t go as planned in 2023. Sunac Holding, the developer of their apartment, like other real estate companies, was on the verge of collapse and halted construction. Their apartment fell into the category of a “rotting house,” a term used in China for such unfinished properties. The couple continued to share their struggles and fights with the real estate company on Douyin. After a while, they announced that their problem was resolved and things were starting to get back on track. However, there were rumors among their followers that the couple had made this announcement due to bribery and/or threats. Consequently, their social media accounts were temporarily suspended. Recently, their accounts were reactivated, and they announced that construction had resumed!
The government is closely monitoring the situation and actively seeking solutions.
*Onur Turkmen is a Turkish scholar and columnist for Birikim Magazine.
This article was originally published in Birikim Magazine and translated by Politurco.
