BEIJING/HONG KONG, April 14 (Reuters) - Liu Baoxiang, who runs a mahjong parlour in a city on China's rust belt, no longer splurges on extravagant fashion items after seeing the two flats he owns lose roughly a third of their value over the past two years.
"I was previously considered wealthy in the area," said Liu, who also owns some commercial property in the northeastern city of Liaoyuan.
"I used to buy mink coats in the tens of thousands of yuan, but I've hardly purchased any and haven't travelled lately."
While pockets of China's property market, which is responsible for roughly a quarter of economic activity, are showing tentative signs of stabilising, the impact of the sector's sharp downturn since 2021 is still rippling across the economy, and clouding its recovery.
Economists call it the wealth effect: asset owners who feel poorer after a sharp fall in prices tend to cut down on spending to rebuild their fortunes.
In play now in China, where around 70% of household wealth is in property, this phenomenon is weighing on the post-pandemic recovery of household consumption, which Chinese policymakers have vowed to make a more prominent driver of economic growth.
Capital Economics estimates net household wealth declined 4.3% overall last year, due to falling house and stock prices, the first decline since at least 2001.
"Households appear to have cut back their consumption in response to negative wealth effects," said Julian Evans-Pritchard, head of China economics at the research firm.
"Recent homebuyers with large mortgages will have suffered the most and therefore likely cut back the most."
SMALL TOWN BLUES
Residents of smaller cities are feeling more pain than those living in big centres like Shanghai or Beijing, where home prices have been more stable.
Average new home prices in the 35 smallest cities among the 70 surveyed by the statistics bureau, known as 'tier 3', saw their 13th consecutive month of year-on-year declines in February.
The bureau does not release the exact prices, but real estate agents say they are 20-30% off peaks in some of those cities and even further off in smaller ones not covered by the official survey, such as Liaoyuan.
For new homes, the nationwide average price per square metre was 10,558 yuan ($1,543) for sales in January-February this year, 6.0% off its peak in January-February 2021, separate data from the statistics bureau showed.
A resident in the northern city of Langfang said her flat is now priced at 8,000 yuan per sq m, less than half the 18,000 yuan she paid for it three years ago.
"I have paid hundreds of thousands of yuan for a downpayment, paid off over 1 million yuan in loans and currently have over 1 million yuan in loans to repay," said Emily, who only gave her first name for privacy reasons.
"I'm not going to spend money on anything this year. I need to tighten the belt. The suffering is unbearable."
WEAK CONFIDENCE
To be sure, household consumption has picked up since China dismantled its draconian COVID curbs in December, with domestic tourism, cinemas and the catering industry leading the way. Car sales, on the other hand, were flat year-on-year in March.
Consumer confidence, while still below the range set over the past two decades, is also recovering from last year's record lows.
Retail sales were up 3.5% year-on-year in January-February and are expected to accelerate in coming months when compared with last year's smaller base, which was hurt by COVID curbs and lockdowns. March data will be released on Tuesday.
But some economists - pointing to a rise in household bank deposits of 17.8 trillion yuan ($2.60 trillion) last year - had expected a much faster resurgence in household spending, as seen in the West after COVID-19 curbs were lifted.
Data so far, including subdued inflation numbers, suggest most of the expected pent-up demand from the pandemic has yet to be unleashed.
Indeed, deposits rose a further 9.9 trillion yuan in the first quarter of this year. Many Chinese are using savings to repay mortgages early.
The lastest central bank survey found that in the first three months of the year, the share of respondents saying they preferred to save fell by 3.8 percentage points from the prior quarter but was still relatively high at 58%.
Nie Wen, an economist at Hwabao Trust, says record savings are unlikely to be converted into significant spending until the end of this year or 2024 as uncertainty about China's growth outlook within a slowing world economy remains high.
"Middle-class residents, accounting for 50% of consumption, remain cautious," Nie said.
Social media content creator Jane would have felt more like a middle class person had her 1.5 million yuan downtown apartment in the southwestern city of Chongqing not fallen in value by some 14%.
"We don't buy new clothes anymore and we don't go out," she said, referring to her and husband. "It feels like we've bought a prison for ourselves."
($1 = 6.8376 Chinese yuan renminbi)
Additional reporting by Shuyan Wang; Editing by Marius Zaharia and Kim Coghill
“We indeed see stabilization but at a weak level” this year for the housing market, Sonali Jain-Chandra, China mission chief for the International Monetary Fund, said Thursday in Beijing, adding real estate investment will still be a drag on growth this year.
Sentiment for China's property sector, for years a pillar of growth in the world's second-biggest economy, has been crushed by multiple crises since mid-2021, including developers' debt defaults and stalled construction of pre-sold housing projects.
Total household wealth in China reached $85.1 trillion in 2021, up 15.1% or $11.2 trillion from 2020. Beijing's 'common prosperity' push has in recent years sharply escalated in official rhetoric and a crackdown on excesses in industries including technology and private education has rattled investors.
In the broad economy, official statistics show that the real estate sector accounts for 6 to 7 percent of China's GDP, but the entire footprint of real estate activity is much larger.
Chinese investors are among the top foreign purchasers of residential real estate, along with Canadians, according to the National Association of Realtors. Other states have had concerns over foreign ownership of land and have made efforts to regulate it.
In 2020, even as the pandemic was already underway, Chinese buyers still purchased over 18,000 homes in the U.S., about half the number from the 2017-2018 highs. But in 2021, Chinese home purchases were down to about 6,000—a two-thirds drop in just one year—for a total investment of under $5 billion.
Difficulties in the housing sector continued into 2022, when total sales decreased by 24.3% from 2021 and investment by real estate developers dropped by 10%. Although prices in first-tier cities, such as Beijing and Shenzhen recorded occasional gains, those of the second- and third-tier cities remain subdued.
For all of 2023, S&P expects China developer sales to fall by about 3% to 5% — slightly better than the previously forecast 5% to 8% drop. This year's forecasts are based on expectations that sales in larger cities grow by about 3%, while sales in smaller cities don't drop by more than 10%, the report said.
China's real estate market has slumped in the last two years after Beijing cracked down on developers' high reliance on debt for growth. BEIJING — China needs to do more in order to fix its real estate problems, the International Monetary Fund said Friday.
The U.S. makes up 23.93% of the total global economy, says Investopedia. The World Bank Group lists China as the second richest country in the world as of 2021, possessing a GDP of $17.734 trillion along with a GDP per capita of $12,556.3. China makes up 18.45% of the total global economy.
The median salary in China is 26,800 Yuan (USD 3,855) per month. That means half of the population draws an average income less than the median salary. In contrast, the other half earns more than the median salary.
As of January 2023, the five countries owning the most US debt are Japan ($1.1 trillion), China ($859 billion), the United Kingdom ($668 billion), Belgium ($331 billion), and Luxembourg ($318 billion).
In play now in China, where around 70% of household wealth is in property, this phenomenon is weighing on the post-pandemic recovery of household consumption, which Chinese policymakers have vowed to make a more prominent driver of economic growth.
Share: Housing's combined contribution to GDP generally averages 15-18%, and occurs in two basic ways: Residential investment (averaging roughly 3-5% of GDP), which includes construction of new single-family and multifamily structures, residential remodeling, production of manufactured homes, and brokers' fees.
How have Chinese and Canadian investments developed over time? The share of Chinese investors in the U.S. real estate market remained somewhat constant until 2018 when it hovered at around 15 percent, before dropping to 11 percent in 2019 and then six percent in 2021.
Chinese buyers comprise one of the largest groups of foreign buyers of residential property in the United States. Historically, between 20,000 and 40,000 residential properties were bought by Chinese nationals, but in 2022, both the sales volume and percentage of all foreign-bought properties declined.
According to the U.S. Department of Agriculture's (USDA) latest report on foreign ownership of American land, from 2021, 146 Chinese investors held 383,935 acres—nearly double the 193,700 acres that comprise New York City.
The Texas Senate on Wednesday gave final approval to a bill that limits the sale of Texas farmland to citizens and entities associated with China and several other countries.
Whether housing investment will recover this year is one of the main uncertainties for China's economy. Real estate investment fell 5.7% in the first two months of the year compared with the same period in 2022, according to official data.
China Evergrande Group, the developer at the epicenter of the country's real estate crisis, has yet to reach an agreement with major creditors on a debt restructuring framework crucial to avoiding potential court-ordered asset liquidation, people familiar with the matter said.
Evergrande Group announces long-awaited debt restructuring deal after 2021 collapse. China's Evergrande Group, whose collapse in 2021 sparked China's worst property market crisis on record, has unveiled a multi-billion dollar restructuring plan to make peace with its international creditors.
China does not permit the private ownership of land. Instead, private parties may obtain the right to use property for up to seventy years. These parties own the structures on the land but not the underlying real estate.
China Earnings Expected to Rebound in 2023 as U.S. and Global Earnings Slow. As of November 23, 2022. 2022 and 2023 values are consensus forecasts. Past performance is not a reliable indicator of future performance.
According to the CoreLogic HPI Forecast, home prices are projected to continue their upward trajectory. The forecast indicates an expected month-over-month increase of 0.8% from March 2023 to April 2023 and a year-over-year increase of 4.6% from March 2023 to March 2024.
To help solve the debt crisis among property developers, Beijing will set up a rescue fund of up to 300 billion yuan (US$44.3 billion), starting with 80 billion yuan. The money may be used to help developers complete unfinished projects, and purchase units which can be let out as rental housing.
Why is there global concern? China is the world's second-largest economy, with deep global trade and finance links. If the property crisis spreads to China's financial system, the shock would be felt far beyond its borders, analysts say.
China's grotesquely overinflated property bubble is at perpetual risk of bursting. A youth-unemployment crisis plagues its major cities.A perennially underpaid labor force is struggling to prop up consumer demand. And the demographic collapse wrought by the one-child policy has just begun.
New-home prices in China's 70 biggest cities rose in each of the first four months of the year, reversing a yearlong slide during the height of Covid restrictions. But the nascent rebound is losing steam. Growth in housing prices slowed in April. And the recovery has not been evenly dispersed.
Property Price: YTD Avg: Shanghai data was reported at 44,762.310 RMB/sq m in Apr 2023. This records an increase from the previous number of 44,373.156 RMB/sq m for Mar 2023. Property Price: YTD Avg: Shanghai data is updated monthly, averaging 15,552.564 RMB/sq m from Jan 2003 to Apr 2023, with 244 observations.
"In the first half of 2023, the S&P 500 is expected to re-test the lows of 2022, but a pivot from the Federal Reserve could drive an asset recovery later in the year, pushing the S&P 500 to 4,200 by year-end," the investment bank said in a research note.
Looking ahead to second-quarter reports, analysts are calling for S&P 500 earnings to fall 6.4% compared to a year ago. Fortunately, analysts are projecting S&P 500 earnings growth will rebound back into positive territory in the second half of 2023.
10% Return for S&P 500 a Real Possibility by End of 2023
And in today's market, with its newfound emphasis on fundamentals, earnings really matter. Short of a recession — a very real possibility — consensus estimates are for about 5% earnings growth for S&P 500 companies in 2023.
Low interest rates will provide a sound foundation for a rebound in the capital markets this year, while the active fund-raising environment will also provide liquidity for commercial real estate investment. CBRE expects commercial real estate investment volume to increase by 15%-20% y-o-y to RMB 250 billion.
Studies have shown that for the past 40 years, housing supply has not kept pace with demand, resulting in a housing shortage ranging between 2 million and 6 million homes. Yet across America, a combination of recalcitrant homeowners and outdated zoning laws routinely block attempts to build more housing.
The property market faced severe downturns in 2022, with sales by floor area plunging more dramatically than ever before. This was largely due to the government's crackdown on debt-financed property, a policy that aimed to break China's addiction to debt.
In 2021, average wage of employed persons for Shanghai was 191,844 yuan. Between 2007 and 2021, average wage of employed persons of Shanghai grew substantially from 44,976 to 191,844 yuan rising at an increasing annual rate that reached a maximum of 15.89% in 2008 and then decreased to 11.61% in 2021.
Homebuyer.com data analysis indicates that, for first-time home buyers, June 2023 is a good time to buy a house relative to later in the year. This article provides an unbiased look at current mortgage rates, housing market conditions, and market sentiment.
In 2021, the average price of residential housing sold in Shanghai, the most important economic hub of China, surpassed 36,100 yuan per square meter, making the city one of the least affordable cities in the country.
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