Nanchang, Once a Symbol of China’s Growth, Signals a Housing Crisis

Rows of towering buildings clinging to the banks of Ganchuan are testament to the real estate boom that has transformed eastern China’s Nanchang from a gritty manufacturing hub to a modern urban center.

Now these skyscrapers are evidence of something very different. It’s China’s real estate market in crisis, reeling after years of overbuilding.

As China’s economy has boomed over the past two decades, Jiangxi’s capital, Nanchang, has built sprawling apartment complexes and glittering office towers to meet the growing demand for housing and jobs. It pursued urban expansion with a motto that emphasized a growth-at-all-costs approach: “go east, expand south, expand west, consolidate north, thrive in the center.”

But the country’s prolonged real estate slump has exposed fissures in cities such as Nanchang, where years of non-stop construction have created oversupply. In one measure, About 20% of housing There are many vacant houses in Nanchang, which has the highest vacancy rate among 28 large and medium-sized cities in China.

Nanchang illustrates the enormous challenges facing policymakers trying to revive China’s economy. During past economic downturns, the Chinese government turned to real estate and infrastructure investment to revive the economy. But this time it’s not an easy fix. Developers are in debt, cities are full of vacant homes, and local government finances have been depleted by years of coronavirus testing costs.

Many of Nanchang’s newest apartments remain vacant as developers have run out of money and have not completed construction on units that have already been sold. Some homeowners are refusing to pay their mortgages until their apartments are complete, and the nationwide protest has rocked the Chinese Communist Party.

Over the last year, the Chinese government and local governments have rolled out incentives to lure home buyers back, encouraged banks to lend generously, and rolled back restrictions put in place before the pandemic to cool the overheated housing market.

New home prices in China’s 70 largest cities rose every four months in the first four months of the year, reversing a year-long decline at the height of coronavirus restrictions. But the early rebound is losing momentum. Home price growth slowed in April.

And recovery is not evenly distributed. Prices have skyrocketed in big cities such as Beijing and Shanghai. Second-tier cities like Nanchang see a more modest economic recovery, and smaller cities may even fail to recover.

China’s housing problem is more pronounced outside major cities because overbuilding is more prevalent in smaller cities, the report said. paper A paper by Harvard economics professor Kenneth Rogoff and International Monetary Fund economist Yuanchen Yang.

Dr. Rogoff said China’s housing boom is premised on “perpetually fast growth,” but that in many smaller cities the economy has not kept up with the pace of housing construction.

“China has been building real estate and supporting infrastructure at a breakneck pace for decades,” he said. “The bottom line is that profits are going down.”

China’s housing boom began in big cities in the late 1990s and spread to smaller urban areas such as Nanchang in the 2000s. In 2000, China built about 2 million apartments. By the mid-2010s, the company was building more than 7 million apartments a year. Real estate quickly became the backbone of China’s economy, accounting for about a quarter of all activity.

The sector created jobs, financed local governments that leased land rights for new buildings, and offered one of the few reliable investment options for ordinary Chinese people seeking to accumulate wealth. As the economy becomes more dependent on real estate, China’s supreme leader Xi Jinping has cracked down on debt-laden developers, declaring that “housing is for living, not for speculation.”

Places like Nanchang have had more construction than population growth alone could sustain. In the decade to 2021, annual housing construction in the city has nearly doubled and the population has grown by 25%.

Kuan Wei, a real estate agent for second-hand homes in Nanchang, said prices in remote areas of the city where he works have fallen steadily, down 25% since 2019.

With so many people trying to sell, he expects prices to fall further. Some are looking to upgrade to a new apartment, while others are looking to sell their investment property before the anticipated property tax is enacted. Quan said about 80% of customers still refuse to cut prices in the hope that the market will recover.

“The current market is not what it was many years ago,” he said.

Nanchang’s residential vacancy rate was 20%, above the national sample average of 12%, according to a report released in August by China’s North Pond Institute. The surge in vacancies has attracted a lot of attention. Because it confirms that China’s real estate problem is more widespread than the Chinese government has allowed.

Beike removed the report after its release, saying the information gathering was “inaccurate” and the data “does not reflect the actual situation”.

Traditionally, Nanchang’s economy relied on manufacturing and construction. Attempts to attract higher-paying digital economy and tech jobs have been largely unsuccessful.

Known as the city where Chinese Communist Party rebels first defeated the Kuomintang nearly a century ago, Nanchang is surrounded by other cities that make it a more attractive option for an office.

In 2022, Nanchang had the same number of buildings over 200 meters high, or about 60 stories, as Beijing. But Beijing had three times the population and was the second-largest city in terms of economic output. In contrast, Nanchang 36th place.According to commercial real estate firm JLL, Nanchang’s office vacancy rate in 2021 will be 40 percent.

Cinderella Fang, 28, was born and raised in Nanchang. When she was a child, most of her apartments were in low rise walkup buildings with no planned communities. She says the area near her home, where she spent her childhood, has been transformed into an area of ​​30-story apartment buildings.

After attending university in Beijing, Fang returned to Nanchang in 2019 hoping to find a job and buy affordable housing. However, she moved to Shanghai a month later. Because her only job she could find in Nanchang was a marketing job for a third of the salary she earned in Beijing.

“Nanchang’s job market is not very good,” Fang said.

Other immigrants to Nanchang were lured by the prospect of affordable apartments and good public schools, but only encountered developers who couldn’t provide the housing they promised.

Shortly after the birth of his daughter in 2019, Andy Kao, who lives and works in Shanghai, bought an unfinished apartment in Nanchang. It was close to her hometown in rural China, where she planned to move after the developer was due to complete the project in late 2021.

However, the developer ran into financial trouble and halted construction in July 2021. Cao and other homeowners boycotted mortgages last July after paying off their mortgages for a year.

Cao also told a salesperson that the apartment is in one of Nanchang’s more established neighborhoods with good schools, but is actually plotted in a less developed neighborhood on the outskirts of the city. He said he was told there was.

“People were duped,” she said. “Otherwise, why are so many people buying houses in the suburbs?”

She said the boycott continued because the houses were still unfinished. Police visited her parents and told her Mr. Cao to stop raising her voice, she said. The bank is now suing some of the boycotting neighbors.

“It’s like hitting an egg against a rock,” says Cao. “I didn’t expect this to happen to ordinary people like us.”

Zou Shengji, a real estate broker in Nanchang, said negative publicity about unfinished apartments has left many home buyers “fear and anxiety”.

Zou’s team sold fewer than 20 apartments during the Labor Day holiday in early May, which is usually a busy time for home sales. In the same period two years ago, sales were three times that amount.

A potential client says he’s coming to see the apartment, but he doesn’t show up. Customers are reluctant to buy because they feel that real estate is too risky at the moment.

“A lot of people are sitting on the fence now,” Zou said. “It could be very difficult to sell a house in the future.”

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