China’s Property Market Enters Troubling New Phase

If sentiment weakens more, it could further set back an economy that has stalled in recent months, after an initial burst of activity following the end of zero-Covid controls late last year.

Property sales enjoyed a brief uptick at the beginning of 2023. But more recently, sales have been falling in major cities including Shanghai, and prices have been dropping in a majority of Chinese markets.        

Adding to the concern now is that more people than usual are putting their apartments up for sale, pushing the tally of new listings to multiyear highs.

In 13 major cities including Shanghai, Beijing, Guangzhou and Hangzhou, the number of listings for existing homes grew by 25% in May from last December, with listings surging 82% in Shanghai and 72% in Wuhan, according to data collected by E-house China Research and Development Institution, a research agency. 

To some extent, the increase is a sign that China’s economy is normalizing after more than two years of pandemic controls when many owners put their lives on hold. Many people are now moving on with plans to marry, start families, or relocate, and to do so they have to sell their homes.   

However, other sellers say they are unloading because they are under financial stress, or because they have lost confidence in the market, and want to get out now before it gets worse.

If too many homeowners try to unload properties at the same time, it could add to oversupply concerns and put a new wave of downward pressure on China’s home prices, undermining fragile confidence in the economy, analysts warn.

“When the oversupply of homes worsens, it surely weighs on prices,” said Bruce Pang, chief China economist at . “It appears that everyone is waiting for home prices to bottom out.”

One seller in the coastal city of Qingdao told the Journal she had to slash her asking price several times before finally finding a buyer in early June.

She initially listed her home for $126,000 but had to settle for around $97,000.

“Old, shabby and small homes, or almost all secondhand houses, aren’t easy to sell in Qingdao,” she said.

A real-estate agent in Qingdao said that while sales have improved from a year earlier, a surge in home listings has put pressure on prices.

China’s real-estate market has been a concern since at least 2021, after Beijing tightened credit on developers to stem speculative behavior. Some developers defaulted, sending shock waves through bond markets.

Prices never fell by all that much, however. Instead, most of the pain was felt by developers, bondholders and deeply indebted local governments, which rely heavily on land sales to developers to fund operations.

Average existing-home prices fell 0.7% across 100 major Chinese cities over the past year, according to Zhuge.com, an online real-estate platform. In the U.S., home prices fell 14% in the three years after the housing bust around 2008.

Local governments in China have taken steps to put a floor under prices over the past year, including banning developers from offering steep discounts.

Now a tug of war is emerging between buyers who expect prices to fall more and sellers who are refusing to discount.

Cao Guoxing, who runs a public-communications firm in Shanghai, put an 860-square-foot apartment he owns in the tourist city of Dali on sale this year to help raise cash for his business and pay down his mortgage on another property.

He found that to sell it he would have to take a loss, Cao said. No prospective buyers have visited the property over the past three months, he said.

“I’m afraid that even if I lower the price more aggressively, there’d still be no buyer,” said Cao, who purchased the vacation property in Dali in 2016 as an investment. “I’m not prepared to slash the price just yet.”

In February, sales of new homes in 30 major cities rose above 2019 levels, but then dropped to around 77% of 2019 levels in May, according to data from Wind, a financial-data provider.

Economists from investment bank Nomura say demand levels are especially worrisome in what are normally considered China’s top four real-estate markets: Shanghai, Beijing, Shenzhen and Guangzhou. All recorded population declines in 2022 for the first time in decades as expatriates left and longstanding demographic challenges deepened.

Demand for existing homes also appears to be fading. In Shanghai, secondhand home sales fell to 15,300 units in May, down 13% from April and well below a minimum of 23,000 units each month between 2019 and May 2022, according to Centaline Property.

Month-over-month declines in average prices for existing homes in 100 major cities have accelerated since February, according to data from China Index Academy, a real-estate research firm. In May, only 15 of 70 cities saw existing-home prices rise on-month, versus 36 cities in April, according to the National Bureau of Statistics.

To stimulate demand, regulators have lowered mortgage rates and loosened funding curbs on developers since last November. Policy makers are also considering plans to scrap purchase limits for most cities in China as part of broader efforts to boost demand, the Journal reported previously.

The market could again rebound, especially if lower prices draw more buyers. Developers have been launching fewer new projects, which could limit new supply in the year ahead.

However, Pang of Jones Lang LaSalle said transactions could contract further as prices decline, in part because many homeowners aren’t ready to take losses yet.

In Shanghai, Zhang Dawei withdrew plans to sell his apartment this year over concern that he may have to lower the asking price sharply because of tepid demand.

“I was told by several brokers that there are simply too many listings now and not enough interested buyers,” said 38-year-old Zhang, who is contemplating helping his wife and son emigrate to Portugal after enduring a two-month lockdown in the city last year. 

“Without enough confidence, home prices cannot go up anymore,” he said. “I’m afraid this will continue for longer.

—Grace Zhu in Beijing contributed to this article.

Write to Stella Yifan Xie at [email protected]