Bloomberg reported that China’s deepening property bust is making the country’s 400-million-strong middle class fall into a terrible shock.
It further shatters their hopes in real estate and even tears their belief in the regime.
House owners desperately trapped in real estate loans
Compared to the U.S., the Chinese’ disposable income per capita is just a fraction. Residents often take years of savings to afford an apartment. It usually costs them a few million Yuan in main urban centers.
As a result, young couples could hardly afford the amount. They typically rely on parents and grandparents to help finance the purchases.
Many more people are becoming victims as the regime aims to accelerate the integration of rural migrants into cities.
The dilemma usually goes like this. Homebuyers make down payments to own properties, which often fall around 30% of the property value, and 60% if they buy a second home.
Afterward, they start paying the monthly mortgages. After a few years, the construction of real estate projects suddenly halted for various reasons. What is left is a bunch of unfinished buildings.
Residents’ dream of owning a proper home in urban areas is shattered. Even worse, they still have to pay the mortgage for the house they’re unlikely to live in, while the property cannot be sold.
According to a Tencent survey conducted this year, over 45% of mainland Chinese homebuyers struggle with unfinished real estate projects.
Meanwhile, the state-run media The Paper’s statistics in 2020 show that unfinished or rotten tail buildings across the country can take an additional two years on average to finish after the initially-set delivery date. The most prolonged delay reached 22 years.
China has recently witnessed a wave of house owners’ backlashes as several property developers failed to deliver their clients their finished properties at the right time according to the contract.
A widely circulated list of unfinished projects has grown to around 320 since July 20.
VOA Chinese reported that more than 300 owners of unfinished properties in more than 20 provinces and cities in China had initiated compulsory mortgage suspension actions.
Many victims of unfinished buildings have expressed their heartbreaking stories. They become slaves to mortgage payments while their houses remain unfinished.
Zhengzhou-based singer and songwriter Chen Peng shared that his parents gave him some money to buy a property–a bid to make it easier for him to get married in 2015.
With the gifted money, plus his life savings and several credit cards, he paid 46,000 dollars for the down payment. According to the newspaper, the amount “was more than 5.5 times the average annual salary at the time in Zhengzhou city.”
Yet, his long-awaited condo stayed unconstructed. The condo project was postponed midway. By the time of the report in 2021, Chen still had to pay the house mortgage without telling his parents about the issue.
He told the newspaper that he had lost 20 pounds by just eating potatoes. The songwriter said, “I’m already dead in a social sense. My body is alive, but my life is destroyed.”
He had joined other homeowners to petition the local government throughout the years but received no resolutions. Last year, he joined a protest at the construction site. Although the group just held banners and chanted some slogans, the police accused them of illegal gathering. Chen himself was detained for three days.
After the incident, he said, “I am a Communist Party member. I used to think that all problems were caused by corruption [or] caused by a few bad people and not by the Communist Party itself.
But after my detention, I think a lot of things need to be re-examined.”
Like Chen Peng, Wang, a 33-year-old homebuyer in Zhengzhou, said he was under increasing pressure to repay his mortgage. He took out a loan of nearly 2 million yuan ( almost 296,000 dollars) in 2019 to buy a house. His house was supposed to be delivered by June 30 this year, but it didn’t look like it would be finished anytime soon.
A young Internet celebrity couple in Douyin, Henan, said they spent more than 1 million yuan (150,000 dollars) on the house, but their lives became house enslaved.
Li, a technology firm worker who had a 25 percent pay cut this year, now uses a third of his salary to make a monthly 4,000 yuan or about 593 dollar-mortgage payment on a stalled Evergrande development in Wuhan.
This month, Li joined about 5,000 others in a boycott to push the local government and the developer to restart construction on the project, which is supposed to house 39 residential skyscrapers.
The 26-year-old says he’s “terrified” about his prospects and is afraid to start a relationship because he’s unsure he will own property—seen as a requirement for marriage.
The Wall Street Journal said information about loan suspensions and online petitions on Chinese internet platforms increased rapidly. Chinese regulators had to move to censor social media postings.
While many Chinese homeowners protest because they’re afraid of losing their money forever, many others face the dilemma in a more patient way.
Tom, a house owner in an Evergrande project in Jingdezhen, has no plans to stop mortgage payments or join protests because he fears it could hurt his credit rating.
However, many buyers, particularly the elderly, don’t have the luxury of waiting. A Jingdezhen retiree named Liu couldn’t qualify for a bank loan and used his life savings of about 119,000 dollars on an apartment with an elevator. He has visited the construction site twice but found no sign of activity.
Liu, who lives on a pension of about 520 dollars a month, said, “The best we can hope for is that the government can fix it.”
He continued, “But let’s be honest, even that seems like a forlorn hope.”
Behind China’s real estate turmoil, who is to blame?
According to Chinese property law, collectivities or the state own most land in China after the Chinese Communist Revolution in 1949.
The regime does not allow individuals or private organizations to take land ownership. Instead, residents can only obtain rights to use land. In addition, a land lease of up to 70 years is usually granted for residential purposes.
China takes urbanization as one of the regime’s paramount priorities to follow GDP targets and the ambition to surpass the U.S. as the world’s leading economy. Consequently, building high-rise buildings is considered to be a viable solution.
According to Bloomberg, China’s housing market is unique as it permits home sales even before they are built. In addition, mortgage payments start immediately after the initial deposit.
This presale-cash procedure has fueled a housing boom by allowing developers to begin new projects.
The policy has resulted in several ‘rotten tail’ buildings laying bare as proof of the regime’s irrational urbanization.
However, state-run media claimed that “China’s new-type urbanization construction has made major historic achievements.”
Mohan Khidia, a Fellow of the Chengdu Institute of Planning and Design, wrote in an analysis, “The government precepts that urbanization coupled with large-scale real estate development is the ideal way to increase the domestic consumers.”
However, many studies have proved that the Chinese development model is unstable. It is largely oversupplied and overvalued. The imbalance, in fact, led to the formation of “the property bubble” in China.
From losing hopes to fleeing
Residents of China’s middle class with real-estate debt are not the only victims losing their hopes in the regime.
SCMP reported that China had recently witnessed a dramatic rise in residents searching for emigration opportunities.
The search for the keyword “immigration” skyrocketed 400 times last April, according to the Baidu Index. WeChat has also experienced a similar situation. In conversations with SCMP, those deciding to leave China shared their reasons, including a tight censorship environment, strict pandemic measures, and oppression of people’s freedom.
According to Bloomberg’s recent report, 10,000 high-net-worth individuals in China are preparing to emigrate in 2022. The number ranks in second place, only below Russia’s 15,000.
These wealthy residents would take away about 48 billion dollars, an average of 4.8 million dollars per person.
Li Yüên Hua, a former associate professor at Beijing Normal University, explained that the main reason behind the massive departure is that people can’t see hope.
According to Lai Jiênping, a master of international law from the China University of Political Science and Law, the whole of China is like a dangerous wall that is about to collapse anytime. He added people have completely lost hope in the communist regime, so they want to leave the country as soon as possible.
However, these residents have difficulties transferring their property to foreign countries even if it is 100% legal and legitime. In addition, the information required for passport applications has grown more onerous.
Since the end of 2020, China has restricted citizens from leaving the country on the grounds of epidemic prevention and has tightened the approval of entry and exit documents.
Moreover, each Chinese person has a quota of only 50,000 dollars per year for foreign currency purchases, making it difficult to transfer funds overseas.