China slowdown highlights potential pitfalls of property reforms

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In Yanjiao, a town about 40km east of downtown Beijing, David Wu has found a novel way to deal with a monthly mortgage of RMB 13,000 ($ 2,048).

Instead of renting or selling his three-bedroom apartment, a 32-year-old office worker who earns RMB 7,000 a month offered to give it to someone who would pay for it.

Four years after Wu bought the apartment for RMB 3.9m and then rented it for RMB 2,500 a month, the property is worth less than RMB 1.5 million and the rent has not soared.

“I thought I could make a lot of money from my investment,” he said. “It ended in a nightmare.”

Wu is one of many real estate owners in Yanjiao and was once a hotspot for investment due to its proximity to the capital, but in 2017 it adopted some of the country’s strictest purchase restrictions to curb real estate speculation. I stumbled upon the town’s decision to do.

The danger to Beijing’s economic policy makers is that the Yanjiao past could be China’s near future. President Xi Jinping said, “Common prosperity“. However, real estate prices can fall even more and faster than the government wants, curbing broader economic activity.

China on monday Gross domestic product grew at the slowest pace in the 18 months of the fourth quarter of last year. Data show a 4% increase compared to the 6.5% increase achieved during the same period in 2020. Quarterly growth improved to 1.6% compared to the revised 0.7% for the July-September period. From the National Statistics Bureau.

“Many Chinese cities may follow Yanjiao [into a] Housing recession due to lack of demand. “

The story of the rise and fall of Yanjiao began 10 years ago when it became a popular destination for Beijing house hunters who couldn’t afford a home. At that time, real estate prices in the capital were many times higher than in cross-border towns in Hebei.

“After Beijing, housing demand grew in Yanjiao. [prices got] It’s out of reach, “said Ojo Higashi, a local realtor.

Between 2010 and 2020, the population of Yanjiao doubled to 630,000.

When immigrants flooded the former agricultural town, so did speculators. A member of the National Association of Realtors in Yanjiao said housing flipping had begun by 2015 as Beijing eased credit controls to boost the economy.

According to E-House China, a real estate consultancy based in Shanghai, sales of new homes in Yanjiao increased by 150% between 2014 and 2016. “Everyone thought that housing burglary would continue, and the only direction for real estate prices was rising,” Wu said.

However, in 2017, the Yanjiao government declared that only residents or migrant workers who had spent more than three years in the town could buy a house there.

Transactions showed a gradual recovery after a decline of about 80% in both 2017 and 2018. “The tightening of policies has reduced our customers from people across the country to a much smaller group of Yanjiao indigenous peoples, many of whom already own multiple homes,” said Wangcheng East.

The slump in real estate puts local government finances under stress. According to a recent government statement, Mikawa City, which manages Yanjiao, is expected to see a nearly 50% decline in land sales revenue in 2021 after a 30% decline in 2020.

Yanjiao has recently stopped forcing a ban on purchases by residents outside the town, but has not publicly announced its decision, according to some familiar with the government’s policy response. As a result, transactions and prices continued to fall towards the end of last year.

“The government has not made too many people aware of the new rules for fear of causing speculation,” said Wang Jongdong. “But how can you increase sales without increasing sales? [the policy change] Is it widely known? “

A Mikawa city official said the purchase restrictions had not changed.

As the housing problem in Yanjiao continues, more and more real estate investors are suffering from mortgages that far exceed the market value of their apartments. Some suffering homeowners, like Wu, offer free apartments to those who are willing to take out a mortgage, while others are in default.

According to official data, Yanjiao’s foreclosures surged from 150 in 2019 to 823 last year. A local bankruptcy court judge who asked not to be nominated said he was struggling to keep up with the resulting workload.

“I stopped offering free tours of seized homes,” the judge said. “There are too many of them.”

Additional report by Maiqi Ding in Beijing

Video: Is China’s Economic Model Broken?

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