The first floor apartment in Zhengzhou had all the makings of a dream home.
Children can go to the new kindergarten being built next door. The buyers were told that a primary school would follow shortly after.
At 600,000 yuan (A$127,000), an apartment in one of China's fastest-growing cities was a bargain. Moreover, the developer will send gifts to homebuyers on Chinese New Year.
The unfinished apartments at Yu Xin Qing in Zhengzhou, China.credit: Sanghi Liu
This vision was sold to 5,000 owners in 2015. Yu Sin Qing's “jungle city” was so popular that homebuyers scrambled to get money from friends and relatives to snap up off-plan apartments.
But nearly a decade later, there are still windows in the row of apartment buildings jutting out of this city of 12 million. No child goes to kindergarten with his or her parents. There is no heating, so the villagers living in the shade try to keep warm in the winter sun, playing mahjong. They are losing hope that the Chinese real estate nightmare will ever end.
“The journey is filled with tears,” says Chang Zhou, a former insurance saleswoman who bought an apartment in U Sin Cheng off-plan in 2015.
Zhang, 53, had to give up her job when her husband died, leaving her to care for her five-year-old son and her ailing 80-year-old father. She struggled to keep up with the rent while making payments on her unfinished house, so she moved into the apartment with no electricity, no doors, and no water.
“It was very cold. There was no light at night. For my child’s safety, I put a knife on the side of the bed. We cooked on a gas stove,” she says. “When I took my child to school, the thugs took all our belongings away.”
Villagers who lost their home to Yu Sen Cheng 10 years ago are living in temporary homes next to the unfinished project.credit: Sanghi Liu
The ripple effects of homebuyers' desperation in Zhengzhou are not limited to these dilapidated housing complexes, this central Chinese city, or the Chinese economy as a whole.
It is being felt around the world as the world's second-largest economy struggles to free itself from the weight of billions of dollars in real estate debt.
Dr. Wang Tao, chief China economist at UBS Investment Bank and a former economist at the International Monetary Fund, said the country was going through the “deepest real estate downturn in history.”
Chinese families have about 60 percent of their wealth tied to real estate, compared to about 40 percent in Australia and 29 percent in the United States. High levels of wealth concentration mean that real estate deflation flows through the economy more sharply than in many other countries. Chinese consumers have reduced their spending at home and abroad, constraining growth in what would otherwise have become a driver of a global economy currently experiencing multiple military and cost-of-living crises.
Home sales are 58 percent of their peak in 2021, and new construction is just 35 percent of 2020 levels. “That's why I say China's real estate market adjustment is the deepest we've seen in history,” Wang says.
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The collapse was caused by failed construction operations such as those in Zhengzhou, which promised buyers a new life but did not deliver. Major developers, such as Evergrande and Country Garden, have pushed thousands of apartments off the scheme to unwitting buyers without the capital to complete them.
The government intervened first in 2020 and again last year to force developers to reduce their debt levels in a bid to weed out bad operators and prevent the sector from spiraling out of control. The construction sector is crucial to 115 out of 153 secondary industries in China's National Bureau of Statistics.
Some homebuyers move into unfinished apartments because they have nowhere else to live.credit: Sanghi Liu
But these restrictions also pushed some companies toward default, leaving the apartments unfinished.
The situation has become so dire that on the first day of this year, Peking University professors Liu Qiao and Yan Si issued a report calling for some radical reforms – including fully “liberalizing” the commercial housing market and encouraging investment in housing. The state purchases unfinished homes and converts them into rental units.
“The current focus of real estate is on survival,” Liu Weiyan said. “Current real estate risks are underestimated, and the worst is yet to pass. The real estate market faces a high risk of a sharp decline in 2024. We urgently need to use measures to deal with financial system risks.
Wang was a little more optimistic. “It will stabilize, perhaps at a very weak level, but then the negative contribution to the economy will dissipate.”
She believes current measures, which include lowering debt levels, lowering down payment requirements and investing in social housing, will start to have an impact, but there is still more to do.
“My prediction is that the real estate market will bottom out in the next six months,” she says.
“But I also see a risk that it will go down again because a lot of activity in the real estate market is based on sentiment, and sentiment is very difficult to predict. It is very fragile at the moment.”
Feelings are grim in Zhengzhou.
Builder Sun Limin paid more than $120,000 down payment for his apartment in 2014.
The 46-year-old borrowed from family and friends to ensure his future home in the popular suburb was secure. The developer then started asking for an additional $816 per square meter to finish the job.
Chinese President Xi Jinping promised that the Yu Xinqing district in Zhengzhou, now practically deserted, would become a center of “high-quality development.”credit: Sanghi Liu
“So the owners took some measures like closing the road and visiting [government’s] Petitions Office. Later, some were arrested, after which no one dared to petition anymore.
“The apartment has been condemned to death ever since.”
In Yu Sin Cheng, Zhang, a former insurance worker, now sells pear juice.
“I buy some pears, cook some white jelly mushrooms, red dates, and rock sugar. Then I sell them at the gate of my child’s school and earn about 100 yuan.” [$20] day.”
Burdened by tens of thousands of dollars in debt, she can't leave her home – even when its bare bedrooms collapse before her.
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“The worst part is waiting like that,” she says. “I have no other choice. I am helpless.”
In 2019, President Xi Jinping visited Zhengzhou to promote his plan to reshape the area adjacent to the Yellow River into a center for “high-quality development.” The country's debt-driven real estate boom has been on the rise, but the cracks in Zhengzhou are already starting to show.
“How great it would be to be able to meet the Chairman of the Board,” my son said. “I was kneeling in front of the Chairman and saying: 'Mr. Chairman, can you help us solve the problem of the unfinished house so that we can move in as soon as possible?'”
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Four years later, they are still waiting for help to arrive.
Sun says all developers and the government are selling now are broken promises.
“I think they are fools. They said it would be finished this year, but it had to be postponed to next year. They will repeat the same thing next year.
“I have no confidence. They are all liars. As long as we don't make trouble, everything is fine for them.”
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