China's Property Market Faces Unprecedented Challenges: Even Beijing Isn't Immune

China’s property market, once a strong pillar of its economy, is showing signs of deepening trouble despite government attempts to revive it. In May, the Chinese government introduced the 517 New Deal, a policy aimed at loosening restrictions on the housing market to boost sales. However, the expected recovery has been weaker than anticipated.

Sales of newly built homes in major cities like Beijing, Shanghai, Shenzhen, and Guangzhou barely improved in June. The decline in sales narrowed only slightly, from a 0.7% drop in May to a 0.5% drop in June. Shanghai was the only city to see a small increase of 0.4% in sales—a rise so modest it’s hardly a sign of recovery. By July, the market showed no further improvement, with prices in top-tier cities dropping by another 0.5%, the same as in June.

Cities Quietly Lower Prices

In a recent report, Bloomberg highlighted that over ten Chinese cities have quietly relaxed or removed price caps on new homes. This move effectively allows prices to drop further. Surprisingly, Beijing—a city usually seen as a stronghold due to its political significance—was among those easing restrictions.

China’s housing market is notoriously opaque, making it hard to get a full picture. However, reports of significant discounts are becoming more common. For example, a residential project on the outskirts of Beijing cut its prices by 18% in May, leading other nearby developments to follow suit. While new home prices are falling, second-hand homes are seeing even steeper declines. Shenzhen, a city known for its high property values, has seen second-hand home prices plummet by 37% from their peak in May 2021. In Shanghai, Guangzhou, and Beijing, the average drop has been around 27%.

Market Shows Strain

Historically, second-hand home prices in China have fallen at about 1.7 to 1.8 times the rate of new homes. This suggests that significant price drops in new homes, particularly in first-tier cities like Beijing, are already happening.

Shenzhen, often seen as a bellwether for China’s housing market, was the first major city to experience a sharp downturn due to its large property bubble and younger population. The rapid rise in property values there has been followed by an equally quick decline. However, the real surprise is Beijing’s vulnerability. The capital’s real estate market has long been seen as resilient, bolstered by its status as the center of government, attracting businesses and wealthy buyers. Yet, Beijing’s property market is now under strain, with newly built home prices falling 0.5% in July, matching the declines seen in Shenzhen and Guangzhou.

A Changing Economic Landscape

These developments suggest that China’s economic landscape is shifting. Even Beijing, once thought to be immune to market downturns, is showing signs of weakening. This could indicate a broader change in the dynamics of the nation’s real estate market. Whether this is just a temporary correction or a sign of a more sustained downturn remains to be seen. The next few months will be crucial in determining the future direction of China’s property market, and further government action may be necessary to stabilize the situation.

The real estate market is a critical pillar of China’s economy, accounting for a significant portion of the country’s GDP and serving as a key driver of domestic investment and household wealth. Beyond its economic impact, the stability of the housing market is deeply tied to the Chinese Communist Party's (CCP) legitimacy.

For many Chinese citizens, home ownership represents not just economic security, but also a tangible stake in the country's future, reinforcing social stability. The CCP has long relied on rising property values to bolster public confidence in its governance, making the health of the real estate sector crucial not only for economic reasons but also for maintaining social order and political legitimacy. A prolonged downturn in the housing market could undermine both economic stability and the public’s trust in the CCP's ability to manage the country’s growth and development.