The crisis in the Chinese real estate market: what to expect in 2023?

The crisis in the Chinese real estate market: the collapse of the 'bubble' and the consequences of 2022
The crisis in the commercial real estate market in China

Observing the rapid rise in housing prices in many countries

especiallyIt's surprising to hear about the collapse of the "bubble" in the Chinese real estate market. The world's second-largest economy is under threat due to a crisis in the real estate sector, which previously accounted for 30% of the country's GDP. The results of 2022, which were recently published, speak for themselves.

What is happening in the Chinese real estate market?

Results of the year 2022The situation turned out to be far from rosy: the profits of the largest real estate developers in China fell by 90%, consumer demand continues to decline, and housing prices keep dropping. According to the report, investments in national housing development decreased by 10% to 13,289.5 billion yuan (approximately €1,799 billion). Investments in residential construction fell by 9.5% to 10,064.6 billion yuan. The area of residential properties in 2022 decreased by 7.3% to 6,396.96 million square meters compared to the previous year.

According to WSJ

sales of apartments by the nation's largest developers have declined annually for 13 consecutive months. Millions of promised apartments never appeared on the market due to the growing crisis; some construction projects have not been completed. Some borrowers are even planning to stop paying on their mortgages because it is not known whether their apartments will be completed.

The situation in the luxury real estate market

The situation also turned out to be unfavorable. Sales of luxury homes priced over 50 million yuan (7.3 million USD) dropped by 40% compared to the previous year. The secondary market for elite real estate priced over 150,000 yuan per square meter shrank by 52%, and sales of homes costing more than 10 million yuan (1.5 million USD) fell to 2017 levels, nearly halving compared to 2021.

Prospects for Commercial Real Estate in China

The commercial real estate market right now a very difficult situation. Recently, the volume of commercial real estate retail space has decreased by 24.3%, reaching 1,358.37 million square meters in 2022. Commercial real estate sales in China have also fallen 26.7% to 13330.8 billion yuan.

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At the same time, the number of offers in the commercial real estate market continues to grow, increasing by 10.5% by the end of last year.

Reasons for the crisis in the commercial real estate market

Experts point to excessive government regulation as one of the reasons for the crisis. The increase in demand for real estate led to rising prices, after which the government enacted the "three red lines" law, which imposed restrictions on developers. This resulted in the default of more than 30 major construction companies.

Negative impact on the luxury real estate market

The problems in the industry have led to a decrease in investment activity, which has affected the supply of luxury real estate. Only 5% of buyers were investors, and after the Covid-19 pandemic, the influx of foreign investments decreased even further. In addition to this, construction companies faced adverse natural events, such as floods caused by heavy rains in 2021.

In conclusion, the crisis in China's real estate market raises many concerns and affects the economic situation not only within the country but also abroad. Despite a number of positive steps of the government to improve the situation, increasing buyer confidence in housing and stabilizing the real estate market will be a long process. real estate market will be a long-term process. It is important that the government's support for demand continue, and perhaps the second quarter of 2023 will bring the beginning of a recovery in the real estate market. However, given given current trends, the increase in buyer confidence in the housing market will be gradual. The most important point here is the stabilization of the economy. Steps taken now will be critical to the future of the of the real estate market.