Through the explosive growth period of the 1990s and 2000s, Chinese families eagerly invested their savings in real estate, banking on ever-rising house prices to rapidly accumulate wealth. However, in the present day, owning property is increasingly becoming a financial burden rather than a boon.

Over the past three years, the property sector has experienced a significant slump, leading to widespread financial insecurity, especially among the middle class. With 70% of family assets in China tied up in property, every 5% decline in prices can potentially wipe out as much as $2.7 trillion in wealth, according to Bloomberg Economics.

Case Study: The Liu Family’s Experience

Take Clara Liu, a 36-year-old civil servant in Hangzhou, for example. In 2022, Clara and her husband invested their savings in an additional apartment, hoping to rent it out or resell at a profit. Unfortunately, the 960-square-foot apartment sits empty as house prices have plummeted, leaving them unable to sell without significant financial loss. “It’s a painful lesson,” Clara says. “I will never consider buying a house as an investment again.”

A Wider Economic Impact

The real estate crisis is troubling for Chinese leader Xi Jinping, who has pledged to enhance the livelihoods of ordinary people. The crisis has contributed to a broader economic slowdown, with official figures revealing that China’s economy grew by only 0.7% in the second quarter of this year, far below expectations. This sluggish growth has further dampened consumer spending and confidence.

According to analysts, despite the significant impact of the property market on the economy, measures to support this sector are not likely to be a priority at this week’s “Third Plenum” in Beijing—an economic meeting held by the Central Committee of the Communist Party.

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An Uncertain Path Ahead

In contrast to the radical reforms of the Deng Xiaoping era, Xi has adopted a cautious approach, implementing piecemeal measures such as easier mortgage access and an “old-for-new” housing trade-in program. But these efforts have not sufficed. New-home prices in China’s 70 largest cities continued to decline by 0.67% in June from May.

The predicament has led consumers to focus on older and cheaper properties. For instance, Zheng Zhaoping, a 29-year-old marketing manager, recently bought a more affordable apartment in Guangzhou.

Conclusion: A Delicate Balancing Act

Amidst the growing economic challenges, public discontent is also rising. A recent survey highlighted a shift in the public sentiment, with people increasingly blaming systemic injustices for their economic struggles rather than personal failings. Experts warn that the sense of inequity could further slow down the economy as people become less likely to spend or invest.

Authorities face a delicate balancing act between managing debt risks and ensuring affordable housing. While property remains central to national strength and livelihoods, large-scale policies to immediately protect the market may not be practical or forthcoming.

For more detailed insights, read the full article here: Real Estate Crisis in China

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