China's housing vacancy rate is high. There are currently 600 million housing constructions, and there is one building for two people on average.

(Photo by European News Agency)

China's real estate market hijacks local finances

[Financial Channel/Comprehensive Report] China’s real estate is facing a bubble crisis, and supply and demand are seriously out of balance. As towering buildings are built one after another, the State Council of the Communist Party of China announced that there are currently 600 million housing buildings in China’s urban and rural areas, with an average of 2 people. There is one house, and the vacancy rate is quite high.

According to expert analysis, China's local finance and real estate are tied up. If the Chinese authorities cannot solve this problem, the real estate market may further deteriorate and the Chinese economy will be hit hard.

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At the end of June last year, China's "unfinished building incident" triggered a large-scale loan suspension storm, which impacted the real estate market and the financial system. A series of loan suspension actions by unfinished building owners broke out in Jiangxi. The authorities did not dare to be careless so quickly. Many construction project owners in many areas shouted "no return to work, no loan repayment", advocating that if the construction project fails to start construction of the buildings they have purchased, they will stop paying the mortgage.

At that time, the collective suspension of loans burned the entire Chinese real estate market, coupled with the dynamic clearing at that time, the economic recovery was slow, and the disconnection of funds may lead to a wave of bankruptcy of construction companies.

China's real estate is facing a bubble crisis, and supply and demand are seriously out of balance.

(Photo by European News Agency)

The real estate market is seriously oversupplied

Multiple reasons lead to China's real estate bubble crisis, among which the impact of supply and demand imbalance is particularly significant.

As of August 2022, there have been 326 unfinished buildings in China. In addition to China, Hong Kong's housing market is also showing signs of bubbles.

Data show that Hong Kong's housing sales in 2022 will drop by 40% compared with 2021, falling to the lowest level since the global financial crisis in 2008.

According to data released by the Chinese authorities, housing sales fell sharply last year, resulting in a sharp drop in the income of real estate companies. In addition, new overseas debts of real estate companies have dried up, and domestic new debts have also been significantly less than in the same period.

The liquidity and debt repayment ratio of real estate companies have deteriorated month by month. Evergrande and Kaisa were revoked by Moody’s last year. It is speculated that there are still unexploded bombs. Comment on the tide".

Housing prices in prime locations in first-tier cities such as Shanghai and Beijing are higher than those in New York and Los Angeles.

(AFP file photo)

Epidemic prevention spending nearly 1.5 trillion, China's local finances are in dire straits

Affected by policies such as epidemic control and real estate supervision, China's economic situation last year showed a weak trend. Even though the government successively resorted to revitalizing measures to try to protect the economy, many policies such as fee reductions and tax cuts have actually reduced local government fiscal revenue. , the burden is increased.

The annual budget report of China's local governments shows that China's provinces will spend at least 352 billion yuan (approximately NT$1.5 trillion) on epidemic prevention and control in 2022.

To make matters worse, the Chinese central government implemented a tax cut policy in order to stimulate the economy, reducing the fiscal revenue of local governments.

In addition, the crackdown on real estate developers has exacerbated the real estate crisis, which has also hit local government revenues.

According to statistics, the total income from the sale of state-owned land use rights, which is regarded as an important source of fiscal revenue by the Chinese government, is facing an avalanche of decline. Last year, the total income from the sale was about 6.7 trillion yuan (about 29.2 trillion NT dollars), which was about 2 trillion yuan less than that in 2021. An annual decrease of 23%.

The decline hit a new high in nearly 10 years.

The storm of unfinished buildings in China has spread all the way to foreign countries.

(AFP file photo)

China's unfinished business style spreads to Malaysia and London

China's real estate has been running wildly for 20 years. In the Asian financial crisis in 1998, the Chinese authorities promoted housing reform.

Economist Qiu Wanjun said that the reform has brought China's real estate into a new stage of commercialization. "In the past two decades, from 1998 to 2019, housing prices have increased by nearly four or five times. Unit housing prices are even higher than those in New York and Los Angeles, but China's per capita GDP is only 1/6 to 1/5 of that of the United States, and there is no background to support high housing prices.

The US$100 billion project "Forest City" in Malaysia, which was invested by Chinese construction company Country Garden, has been implemented for 8 years, but the local area is deserted. Many Malaysians regard it as the largest and most controversial project in Malaysia. One of the last projects, a city that can accommodate 700,000 residents, ended up with only more than 2,000 residents, turning the city into a "ghost town".

Former Malaysian Prime Minister Mahathir Mohamad believes that the development project is completely inconsistent with the local consumption level, not only real estate speculation but also driving up housing prices. This is no longer an investment but a colonization.

London, England has also been invaded. The Chinese real estate developer "Headquarters Base" (ABP), which entered the UK for the first time in 2013, originally signed a contract with the then Mayor of London, Boris Johnson, and planned to invest 1.7 billion pounds (approximately NT$65.4 billion) to build a new building in London. Financial City, however, the development agreement was terminated by the London government last year, and the land was taken back. The Chinese enterprise headquarters base that was originally responsible for the development was also applied for liquidation by the creditors.

The Chinese authorities launched a number of rescue measures, but to no avail.

(Reuters file photo)

Baojiao building resumes work slowly 

Recently, many Chinese media have claimed that China’s real estate market has “signs of recovery.” Unexpectedly, they were slapped in the face by Chinese financial experts, bluntly saying that the CCP’s mindless epidemic prevention in the past has shut down China’s economy. 3 years of dismal performance.

Nearly half a year after the China Guarantee Building Action was launched, the market research agency CRIC released the latest report. As of the end of 2022, 290 construction projects in China have been suspended, and only 20% of them have fully resumed work.

Although the country's government has launched a number of rescue measures since last year, from the perspective of public demand and local government debt burden, there is a hidden bubble crisis in China's real estate.

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