China’s big-city homeowners cash out

SHANGHAI: Chinese homeowners are losing conviction in their decades-long belief that property is a reliable store of wealth, undermining even coveted markets like Shanghai and adding pressure on authorities to find new sources of economic growth.

Asking prices in the financial hub have slumped for three straight months, falling to the lowest level since before China emerged from Covid lockdowns at the end of last year, according to data compiled by Centaline Group.

Despite surging inventory, transactions in the city tanked by one third to about 16,000 units in May compared with March, the Economic Observer reported this month.

Interviews with homeowners, real estate agents and analysts suggest the downturn has been fuelled by waning faith that property will always be one of China’s safest investments.

While that shift in mindset has in some ways been welcomed by policymakers seeking to rein in speculative buying, the risk of a deeper-than-desired slump is rising at a time when the broader economy is losing momentum.

Longer term, authorities may struggle to replace real estate as a key driver of growth and bulwark of the nation’s vast middle class.

“Selling pressure is really piling up here” in Shanghai, said Jun Li, chief investment officer at Power Sustainable (Shanghai) Investment Management, a Canadian financial firm. “It seems homeowners have reached a consensus that the market has peaked.”

Song, a banker who recently sold his apartment in Shanghai’s prestigious Jing’an district for about 10 million yuan (US$1.4mil or RM6.5mil), said he viewed this as one of the last windows to cash out of the property boom.

The 35-year-old still owns other properties in China with his family, but wants to reduce exposure to the sector due to expectations of property taxes and a prolonged slowdown in the sector. He asked to be identified by his last name for privacy reasons.

His experience is shared across the country. Existing home prices in 100 cities recorded the biggest decline in May since at least 2022, according to data compiled by real estate research firm China Index Academy.

“Shanghai has the most sluggish existing-home market in China right now,” said Yan Yuejin, a research director at the e-house China Research and Development Institute. “Across the nation, supply and demand in the secondary market have also deteriorated.”

Homeowners in the southern metropolis of Shenzhen have cut prices to the lowest level since October 2016, according to data compiled by Centaline Group. — Bloomberg