Since the end of China’s zero-Covid policy late last year, property broker Wu Hong is so busy chasing new leads that she no longer has time to sit around playing cards with her colleagues. “Now I spend so much time talking to clients that I often feel pain in my throat,” said Wu.
But her hard work is not translating into sales. Sales of newly built homes in Wuhu, a city in eastern China about 300km from Shanghai, were up 10 per cent last month from 448 properties in December. But they remain down almost two-thirds from the 1,341 properties sold in January 2022.
The tepid real estate recovery in Wuhu underscores the challenges for Chinese policymakers to stimulate the country’s property market, a critical growth engine that has floundered over the past two years under a government crackdown and Covid-19 controls.
Even by the standards of other Chinese cities, Wuhu has an abundance of unsold homes, a person briefed on the matter said.
“Homebuyers are back,” said an executive at a developer with projects in Wuhu. “But they are more cautious in making decisions for fear that prices, which have been softening, will decrease further.”
China’s real estate sector is estimated to account for about 30 per cent of total economic output and is closely tied to the finances of local governments, which last year made Rmb6.7tn ($990bn) — or a third of total fiscal revenue — from land sales to developers.
But government restrictions on high levels of leverage in the sector intended to limit speculation and risky lending — known as the “three red lines” policy — have starved developers of cash, driving some into default, freezing projects and sending house sales and prices plunging.
Sales of newly built homes in China’s 30 major cities fell 31 per cent in 2022 and continued to decline last month, according to Wind, a financial data provider.
In Wuhu, an average 90 sq m flat cost about Rmb900,000 ($133,000) last month, still down a fifth from a year earlier.
Even with the country reopening and the government easing its leverage limits to stir growth, “the economic fundamentals are too weak to support a dramatic turnaround in real estate”, said Bo Zhuang, a Singapore-based economist at Loomis Sayles.
That has prompted developers to take aggressive steps to revive sales. Instead of sticking to a state-imposed price floor — introduced to safeguard local government revenue — the Golden Scale House, a residential project in a suburb of Wuhu, has offered a Rmb230,000 renovation subsidy one month after a sale is completed.
While sales rose by a third month on month in January, a GSH official said the project was barely making a profit after the discount, which amounted to about 20 per cent of the price of an average three-bedroom apartment.
“We went through a very bad 2022,” said the person, who requested anonymity. “We have to generate cash flow in order to survive.”
Wuhu’s ageing population is also partly to blame for the house price decline. As with many of its inland peers, the city has in recent years faced an outflow of youth, a major source of demand for new homes.
“Twenty-somethings would rather rent a basement in Shanghai and have a future than stay with their parents and work 12 hours a day at a factory here with little growth potential,” said an official in the city’s Jiujiang District Labour Market.
At No 1 Park Avenue, a popular residential compound in a Wuhu suburb that was completed and sold out seven years ago, more than 10 per cent of apartments have never been occupied, according to an internal document from the local homeowners’ association. Brokers said many were bought as an investment in the hope that prices would rise.
The Wuhu local government is eager for the market to rebound, announcing a slew of incentives since the second half of 2022 including house purchase subsidies worth up to a 10 per cent discount.
“How do you expect new home prices to take off when so many existing homes are up for grabs at a discount price?” said a developer with operations in Wuhu.
Local homebuyers voiced caution. “There is no need to rush when the market is still weak,” said Li Hui, a 30-year-old office worker in the city who has been hunting for a three-bedroom flat for three months.
Local authorities have also stepped in to prop up land sales, which the government relies on to make ends meet. Last month, the Wuhu city finance bureau set a 20 per cent growth target for land sales this year.
Developers remain unconvinced. “It will take a long time for confidence to be restored,” said the executive at the Wuhu developer, which has no plan to expand in the city. “We are far from there yet.”
