7 months ago
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By Ella Cao and Ryan Woo
BEIJING (Reuters) - Chinese homebuyers on a tight budget have long sought out Hegang, an ex-coal boomtown on the Russian border. Now, as China's property crisis spreads, Hegang's basement prices are showing up in wealthier regions in a new threat to the economy.
Average prices of new homes in 70 major cities including Beijing slumped for the 14th month in August despite dramatic reversals in China's once-restrictive purchase policies. Even prices in the economically vibrant south have sunk, stoking intense social media discussions on widening property deflation, with hashtags "Hegang-isation" and "HegangHomePrices" chalking up tens of millions of views.
In Huizhou, a southern city with a once-thriving property market due to its proximity to Shenzhen and its abundance of sea-view apartments, newlyweds Wendy Ye and her husband in 2021 paid 11,000 yuan ($1,551) per square metre for a flat. The value of their home has since dropped by a staggering 45.5% to 6,000 yuan per square metre.
The sharp decline has turned the couple's investment into a source of constant stress, made worse by a hefty 9,000 yuan monthly mortgage on a second flat in Shenzhen. With a recent cut in her salary compounding matters, Ye, a primary school teacher, said she was considering borrowing from her parents to ease some of the financial pressure.
"I'm trying not to dwell on the diminished equity for now, but the mortgage pressure is heavy," Ye told Reuters.
Across China, average home values have tumbled nearly 30% from their 2021 highs after authorities clamped down on excessive debt among developers in the summer of 2020. That sparked severe cash crunches and led to incomplete projects, defaults and even public protests by homebuyers, hammering market sentiment.
REGIONAL IMPACT
The protracted property downturn has eroded the wealth of Chinese households, which often count their homes as their single largest investment, chilling domestic demand and undermining growth in the world's second-biggest economy.
Retail sales, a key gauge of consumption, rose just 2.1% in August, compared with around 8% growth pre-COVID.
"It's very difficult to expect households to confidently spend if their biggest asset is falling in value every month," said Lynn Song, chief China economist at ING.
Plunging prices of new and existing homes in southern China could also set off a chain reaction affecting the country's largest provincial economies including Guangdong, analysts warn.
