Shocking Reality of China’s Real Estate: Is it Headed for a Meltdown?

A landscape that definitively speaks of the crisis facing the Chinese real estate industry. It’s a housing complex in the suburbs of Beijing, left unfinished due to the bankruptcy of the construction company./Jingjiribao.

As the crisis in China’s real estate industry finally emerges as a stark reality, it is expected to be a significant factor in the deterioration of the growth rate. In the worst case, the collapse of the entire industry could become a reality.

A comprehensive review of recent reports by media outlets, including Jingjiribao, suggests that the current situation of the Chinese real estate market is arguably the worst in history. Many real estate developers, who once dominated the market, are now entirely bankrupt, burdened with enormous debts.

In this context, it would be unusual for the real estate industry, which significantly contributes to a quarter of the GDP, to perform at an average level. It wouldn’t be a stretch to assert that it continues to experience negative growth. The significant downward pressure on real estate prices and rents alone indicates this trend, making additional examples unnecessary to underscore the point.

For example, in Beijing, it’s reasonable to assume that prices have dropped by an average of about 5%. Rents have fallen even more. They’re down by an average of about 10%. Real estate agent Liang Yunqiao in the Jiu Xian Qiao area of Chaoyang district in Beijing says, “There are far fewer transactions than before. Even when transactions take place, the atmosphere is bad. Neither sellers nor buyers are satisfied. As for rents, we just hope they won’t drop any further.” His pessimistic view of the market situation is not without reason.

The stagnation of the real estate industry and market naturally acts as a cause of economic deterioration. If foreign media outlets like Bloomberg are pessimistic about China’s economy this year, it’s safe to say the atmosphere has been pretty bad since the beginning of the year. This is opposite to the optimism of the Chinese industry, which expects more than 5% growth.

Last year, the Chinese economy grew by 5.2%, in line with the authorities’ target of around 5%. The authorities have set the same target for this year. However, it won’t be easy if the real estate crisis becomes real. Bloomberg’s forecast of 4.5% growth may not just be a simple prediction. It seems appropriate to say that the real estate industry, where large related companies are being driven into bankruptcy one after another, is hampering the Chinese economy.