Nanchang’s buildings represented urban transformation, but the city was building apartments faster than its population growth; the result: vacant homes and offices
THE NEW YORK TIMES – The rows of stately buildings along the banks of the Gan River are testament to the real estate boom it transformed nanchangeast of Chinafrom a dusty industrial hub to a modern urban centre.
Now those skyscrapers bear witness to something quite different: the real estate market of China is in crisis, reeling after years of unbridled growth.
As China’s economy has boomed over the past two decades, Nanchang, the capital of Jiangxi province, has built gleaming apartment complexes and office towers to meet ever-increasing demand for homes and workplaces. The city pursued urban sprawl with a motto that highlighted its growth-at-all-costs strategy: “Advance east, extend south, expand west, integrate north, thrive in between.”
However, the country’s protracted housing crisis has exposed cracks in cities like Nanchang, where years of nonstop construction have created oversupply. An estimated 20 percent of properties in Nanchang are vacant, the highest rate among the country’s 28 large and medium-sized cities.
Nanchang exemplifies the formidable challenges politicians face as they seek to revive China’s economy. During past crises, Beijing it resorted to spending on real estate and infrastructure to take advantage of the economy. But this time it won’t be easy to fix it. Homebuilders are mired in debt, cities are littered with vacant homes, and local government reserves are depleted after years of construction test payments. covid.
Prices for new homes in China’s 70 largest cities rose in each of the first four months of the year, reversing a year-long slump at the height of Covid restrictions. But the initial recovery is losing steam. Property price increases slowed in April.
And the recovery has not been smooth. Prices have gone up again in bigger cities like Beijing and Shanghai. In slightly smaller ones, such as Nanchang, the recovery has been more subdued and even non-existent in smaller cities.
China’s housing problems are more evident outside of major cities because overbuilding has been more prevalent in smaller cities, according to an article by Kenneth Rogoff, an economics professor at Harvard University, and Yuanchen Yang, an economist at the IMF. International.
Rogoff said China’s housing boom has been based on “endless and rapid growth,” however, in many smaller cities, the economy has not kept pace with housing construction.
“China has been building real estate and sustaining infrastructure at a breakneck pace for decades,” he said. “Sooner or later, you run into diminishing returns.”
China’s real estate boom began in the late 1990s in the largest cities before spreading to smaller urban areas such as Nanchang a decade later. In 2000, China built about two million apartments. By the mid-2010s, the country was building more than seven million apartments a year. The real estate sector has quickly become the backbone of the Chinese economy, accounting for about a quarter of all assets.
The industry has created jobs, helped fund local governments by leasing land rights for new buildings, and provided one of the few reliable investment options for ordinary Chinese looking to hoard assets. As the economy became increasingly dependent on real estate, Xi Jinping, the Chinese president, cracked down on indebted developers and declared that “houses are for living, not for speculation.”
In places like Nanchang, there was more construction than population growth alone could handle. In the decade leading up to 2021, the number of new homes built each year in the city nearly doubled, while the population grew by 25%.
Kuang Wei, a real estate agent in Nanchang, said prices in the city’s more remote areas had dropped steadily, by 25% since 2019.
His expectation is that values will drop even more because many people are looking to sell properties. Some are looking to move into newer apartments, while others want to divest the properties they’ve invested in before a planned property tax is passed. Kuang said about 80% of his customers still refuse to lower prices, hoping the market will recover.
“Today’s market is not what it was many years ago,” he said.
Nanchang’s vacancy rate of 20 percent was higher than the average of 12 percent in the national sample, according to an August report by China’s Beike Research Institute. The ever-growing number of vacant properties attracts a lot of attention because it confirms that the problems in China’s real estate sector were greater than Beijing had let on.
After the release of the report, the Beike Research Institute deleted the document, saying it had collected information “incorrectly” and that the data “did not reflect the real situation”.
Traditionally, Nanchang’s economy depended on the manufacturing and construction sectors. The city has tried to generate better paying jobs with the digital economy and technology sector but has not been very successful.
Known as the city where Communist Party of China rebels first defeated the nationalists nearly a century ago, Nanchang is surrounded by other cities that are more attractive office options.
Nanchang had the same number of buildings over 200 meters, or about 60 stories, as Beijing in 2022. However, Beijing’s population was three times as large, as well as being the city with the second-highest gross domestic product. Nanchang, on the other hand, is the 36th. In 2021, JLL, a commercial real estate consultancy, said the vacancy rate in Nanchang was 40%.
Cinderella Fang, 28, was born and raised in Nanchang. When I was growing up, most buildings were low-rise and without elevators, and there were no planned communities. She said the area near her childhood home has been transformed into a sprawl of 30-story apartment complexes.
After moving to Beijing to study at university, Cinderella moved back to Nanchang in 2019 with the hopes of finding a job and maybe buying an affordable house. But she ended up moving to Shanghai a month later because the only job she could get in marketing paid a third of what she earned in Beijing.
“The job market in Nanchang is not the best,” said Cinderella.
Others who have moved to Nanchang have been attracted by the prospect of reasonably priced apartments and good public schools, only to find that developers have failed to deliver the properties they promised.
Shortly after the birth of her daughter in 2019, Andie Cao, who lives and works in Shanghai, bought an unfinished apartment in Nanchang. The property was closer to her hometown in rural China and she planned to relocate to Nanchang after the construction company completed the project, which is scheduled for late 2021.
However, the construction company ran into financial troubles and stopped work in July 2021. After continuing to pay the mortgage for a year, Andie and other homeowners staged a mortgage boycott in July of last year.
Andie said the sellers also told her the apartment was in one of the best neighborhoods in Nanchang, with good schools; however, it was actually subdivided into neighboring and less developed areas on the outskirts of the city.
“Everyone has been deceived,” he said. “Why else would so many people buy a house in the suburbs?”
He said he was continuing to boycott mortgage payments because the properties hadn’t been finalized yet. According to Andie, the police went to her parents’ house to tell her to stop demonstrating. The banks are now suing some of their neighbors who are also boycotting their mortgage payments.
“It’s like an egg being hit against a rock,” Andie said. “I didn’t expect this kind of thing to happen to ordinary people like us.”
Zou Shengji, a real estate agent, said the negative publicity around unfinished apartments had left many would-be buyers “fearful and worried”.
During the Labor Day break in early May, a typically busy time for property sales, Zou’s team sold fewer than 20 apartments, he said. Two years ago they had sold three times as many in the same period.
Potential clients say they’ll come and look at the apartments, but they don’t, he said. They are reluctant to buy because real estate seems too risky at the moment.
“A lot of people are on the fence right now,” Zou said. “It’s possible that the properties are really hard to sell in the future.”
Source: Terra
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