Real Estate

A Shifting Market Stings Chinese Homeowners


Danny Deng and his bride-to-be dreamed of their lives together as they walked through the showroom for a Shanghai housing project in September. Pooling his own and his parents’ savings, a loan from his boss, and a 1.1 million yuan ($172,000) mortgage, he bought an apartment and secured his fiancée’s hand. Two months later, Deng found himself facing off against a ring of security guards three rows deep wearing camouflage and carrying shields as he joined more than 100 homeowners rallying in front of the development’s sales office.

His transformation from newlywed to street protester came after the developer, China Vanke, slashed prices at the Qinglinjing complex, erasing about 20 percent of the value of Deng’s three-bedroom unit overnight. “If I’d paid for it all myself, the price cut wouldn’t bother me as much. But there’s a lifetime of my parents’ blood and sweat in it,” says Deng, a 30-year-old electrical systems salesman.

Urban residential values have risen 155 percent nationwide since Chinese reforms 13 years ago created a private residential market. Prices in Shanghai almost quadrupled over the past decade. This year, concerned a bubble was forming, the government stepped up measures to cool the market, including restricting home purchases in some cities, raising down payments, and warning banks and other lenders to limit loans to builders. Some developers, needing money to pay off loans and meet payrolls, have cut prices to boost sales. Residential values fell in November for the third month in a row, according to SouFun Holdings (SFUN), China’s largest real estate Internet portal.

While property privatization has helped fuel one of the fastest episodes of wealth creation in world history, new buyers like Deng often mortgage their futures to afford a home in China’s expanding cities. The home-buying boom has contributed to a doubling of household debt in China since 2008, though the total amount is still far below U.S. levels, according to research firm Dragonomics. And Chinese have much of their wealth tied up in real estate for lack of alternate investments

Deng’s anger underscores the problem China’s government faces. Push too hard to restrain home prices, and the resulting bust may provoke the ire of a new generation of middle-class fang nu—debt-burdened housing slaves—caught on the wrong side of a market correction. Also at stake is a big source of Chinese and global growth: Real estate accounts for 12 percent of China’s gross domestic product even before counting building materials, furnishings, and appliances, according to a July report by the International Monetary Fund. Despite signs of a slowing economy, China’s ruling Communist Party Politburo reiterated its “unswerving stance” on curbing property prices, the official Xinhua News Agency reported on Dec. 9.

China’s emerging middle class now includes as many as 243 million citizens, says Cheng Li, a senior fellow at the Brookings Institution in Washington. On a growing number of issues, from housing to the environment, they are voicing their opposition online and in the streets. In an indication of how seriously the government is taking the matter, a Nov. 21 commentary by Xinhua said such protests are “a social phenomenon that cannot be ignored,” before adding that their appeals aren’t supported by law. China Vanke, in an e-mailed response to questions, said that while it understood customers’ anxiety, prices were set by supply and demand. “In a market correction, it’s hard to avoid that both sides, developers and home buyers, will be affected,” the company said.

For Deng, the pain isn’t just financial. He tears up recounting the moment his father handed him access to his life savings of 360,000 yuan to help make the down payment. The gift made Deng consider himself a member of the ken lao generation, meaning those who gnaw on the elderly. Just weeks after Deng had signed his purchase contract, he found out about the price cut when he saw a leaflet advertising apartments in the same development with a discount of 4,000 yuan per square meter. The previous asking price was about 17,000 yuan to 18,000 yuan per square meter, according to SouFun’s website. Acknowledging he’s unlikely to get the difference refunded, Deng, who asked not to be identified by his full Chinese name because of the personal nature of his story, says he’s now pushing for a waiver of management fees or a free parking space. Deng says he had to buy the apartment so he could get married. “I didn’t have a choice,” he says. “Otherwise, maybe for a long time, I would be alone.”

The bottom line: Urban home prices are up 155 percent over the past 13 years. Government efforts to cool the market risk have sparked homeowner protests.


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  • SFUN
    (SouFun Holdings Ltd)
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