China's Real Estate Market Dropped 46% Over The Last Two Years

China's real estate market is facing a significant downturn, with residential real estate volumes dropping by nearly 46% in just over two years. This decline is happening faster than the one experienced during the 2008 financial crisis, highlighting the severity of the current situation. The real estate sector plays a crucial role in China's economy, making up around 70% of gross household wealth in the country. This underscores the potential wide-ranging impact of the crisis on the Chinese economy.

One of the most alarming aspects of the crisis is the presence of approximately 80 million unfinished or empty apartments, indicating a severe oversupply in the market. Despite government stimulus and economic recovery efforts, the real estate sector's struggles are expected to have a long-term impact on the country's economy.

Recent developments have seen China's ruling Communist Party pledging to study steps to digest the nation's housing stockpile, signaling stepped-up efforts to support the real estate sector. This move comes as China's Politburo, the country's top decision-making body, also promised efforts to support the ailing property market. These actions are in response to the protracted crisis that has seen home sales continuing to fall, underscoring the need for the government to step in and revive the market.

The crisis in the real estate market has not only affected the economy but also poses risks to the wider financial system. The potential for a wave of developer bankruptcies is the biggest risk to China's housing market at the moment, which could result in a large number of unfinished properties. This could have significant implications for banks and local governments, which are the two biggest entities supporting China's growth.

Despite these challenges, there are some recent initiatives aimed at alleviating the crisis. For example, Chengdu has eased homebuying rules, and Nanjing has launched a pilot program to support financing for property firms and to make housing more affordable. These measures reflect the government's efforts to stabilize the property market and support the real estate sector.

However, the road to recovery is likely to be long and fraught with challenges. The crisis in the real estate market has exposed the risks that have accumulated in the sector over the past two decades. The recent spate of mortgage strikes by homebuyers across China is a clear indication of the growing discontent among the population. The housing market had been enjoying a long rise since the early 2000s, reaching a peak in 2018 before the current sharp decline. This situation has left developers in a precarious position, with many projects paused and homeowners refusing to pay their mortgages.

The current state of China's real estate market is a cause for concern. The government's efforts to support the sector are crucial in preventing a deeper crisis, but it remains to be seen how effective these measures will be in addressing the underlying issues. The real estate sector's struggles have far-reaching implications for the Chinese economy and could potentially impact the global economy as well.