How China is ‘manipulating’ its property market

China is tearing down tower blocks and pausing construction on buildings that could house 75 million people as Xi Jinping’s government seeks to prop up the country’s stalling property market.

Analysts have warned that Beijing has adopted a “build, pause, demolish, repeat” strategy as Chinese officials seek to restrict supply to avoid a plunge in house prices and boost economic activity through more construction.

Analysts have warned Beijing has adopted a “build, pause, demolish, repeat” strategy.Credit:Bloomberg

Researchers at Fathom Consulting revealed that about 3 billion square metres of housing had been put on pause or demolished in recent years, stopping properties reaching the market. It is enough to house 75 million people, more than the entire population of the UK.

Indebted Chinese developers have been plunged into crisis as the struggling property market weighs heavily on the world’s second-largest economy.

China has vast unoccupied “ghost cities” over huge amounts of debt-fuelled development, while demolitions have increased as builders run out of money.

Joanna Davies, head of China economics at Fathom, said that houses on average take a “staggering” eight years to be completed as supply is “drip fed into the system”.

“A key policy tool to manipulate supply is to order the mothballing of properties during the construction phase of a project,” she said.

“These practices enable the amount of new housing under construction to keep rising – which helps to prop up short-term economic growth and keep a lid on social unrest – without flooding the market and driving down property prices.”

Confidence in China’s property market has crumbled after a crisis at some of its indebted developers. Property giant Evergrande defaulted on its debt after borrowing aggressively with many Chinese homebuyers left exposed by snapping up property before work even began.

“With the cumulative stock of spare capacity at a staggering 10 billion square metres, it appears China has resorted to demolitions to reduce some of this excess,” Davies said.

“China’s residential housing starts have long exceeded completions, resulting in a growing stock of housing ‘under construction’.

Confidence in China’s property market has crumbled after a crisis at some of its indebted developers.Credit:Bloomberg

“The amount of floor space reported as being ‘under construction’ in 2021 sits well below what floor space ‘started’ minus ‘completed’ suggests that amount should be.”

She said the “only explanations for that gap” are construction being paused on properties and demolitions.

Beijing moved to cut mortgage costs on Monday as it boosts efforts to shore up the property market.

Its central bank reduced the five-year loan prime rate – which impacts mortgage costs – by 0.15 percentage points to 4.3 per cent, equalling the record cut made in May.

China has also announced special loans for developers worth 200 billion Chinese yuan ($42 billion) to help them complete unfinished homes that have already been sold.

S&P estimates suggest that property sales in China will slump by a third this year, a drop worse than during the financial crisis. The property market accounts for about a quarter of Chinese GDP as its economy is also hamstrung by Xi’s zero-COVID stance causing stop-start restrictions.

Sheana Yue, China economist at Capital Economics, said China’s economic outlook has darkened in recent months as the property market struggles.

She said: “The deteriorating virus situation adds to disruption risks and will continue to be a drag on consumer confidence. Problems in the housing market appear far from being resolved. And although policy support has been stepped up, we doubt this will provide much boost to the economy.”

Telegraph, London

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