A real estate agent in China who sells a home is almost a folk hero

The sales room of the new construction project Ster Rivier Stad in the Chinese provincial town of Baoding exudes luxury and elegance. Marble floors, sleek designer furniture, a water feature with fountains and modern art. At the rear, a facade of meters-high glass offers a view of the shipyard. Real estate agent Hua points enthusiastically: eight of the sixteen residential towers are already there, and a red banner has just been hung on the last one to celebrate the fact that the top has been reached. Everything is on schedule, he says, everything is going well.

But the sales? Real estate agent Hua sighs and gestures to the empty room, the unused coffee tables and his three saleswomen who are hanging bored on a lounge chair. Customers are nowhere to be seen. “You can see it for yourself,” he says. “It’s been like this all week.”

The Chinese real estate sector has been in trouble for two years, and the end of the crisis is not in sight. After a brief revival this spring, after the end of the zero Covid policy, things have been going downhill again since last summer. Chinese home sales are at their lowest level in eight years, and house prices continue to fall. This has a major impact on the Chinese economy, which, according to experts, will struggle to achieve the target of ‘around 5 percent growth’ this year.

The real estate sector – including building materials and furniture – makes up around 30 percent of China’s gross domestic product (GDP), and housing has long been the investment of choice for Chinese households, who invest an average of 70 percent of their wealth in real estate. Falling house prices are therefore putting a heavy burden on consumer behavior. Local governments also depend on the sale of land for their income. The real estate crisis is dragging down the entire Chinese economy.

The Golden Week

The Chinese government recently introduced measures to support the market: mortgage interest rates were lowered, as was the mandatory down payment. A first test for these measures came last week: Golden Week, the national holiday at the beginning of October. This normally counts as a peak moment for the housing market. Many working young people then move from the big city to their hometown, where they discuss their finances with their family and go house hunting.

But the question is whether the measures are sufficient to turn the crisis around. In Baoding, a city of 9 million inhabitants 160 kilometers from Beijing, there is no storm on the first day of Golden Week. The city exudes a holiday atmosphere: the streets are quiet, the residents relaxed. Many real estate agents have closed their doors to visit family themselves. Some are at work, but often sit in an empty office, waiting for their first customer of the day.

“We expected more viewers, but the sudden news has made people concerned,” says Hua, who does not want his real name in the newspaper. He is referring to the problems facing Chinese project developers: the CEO of real estate giant Evergrande is in detention, the even larger real estate giant Country Garden has missed payment deadlines, and developer OceanWide has been declared bankrupt. Hua’s company has also received negative press, but he does not want the name mentioned.

“The customers who come now are people who already bought an apartment last year,” he says. ‘They come to see if we are still building.’ Chinese buyers have to pay for a large part of their home up front, and are terrified of so-called lanweilou – literally: rotten buildings – that are never completed due to financial problems at the real estate company. ‘But here they see that we are making good progress, and that their buildings have already reached their peak. There is no cause for concern.’

Deflating bubble

The Chinese real estate market was the subject of heavy speculation for decades and had grown into a dangerously large bubble, inflated with high debts. The Chinese government tried to put an end to this in 2020, with strict restrictions on the debt ratio of real estate companies. That led to the fall of Evergrande, and a chain reaction of faltering project developers, worried consumers and falling prices. The bubble seems to deflate faster than desired.

“The best times here were in 2016 and 2017,” said Gao, who has worked as a real estate agent for 10 years. At that time, President Xi Jinping announced the construction of a new city near Baoding, a personal prestige project. House prices in the region skyrocketed. “People came from all over the country to Baoding to buy houses. She couldn’t move fast enough. They were afraid that if they waited a week, prices would be 100,000 renminbi (13,000 euros) higher again.’

“It’s different now, now it’s difficult to find even one customer,” says Gao. ‘Now only people who urgently need a house buy. There are no more investors. Everyone thinks that prices will drop even further and that it is better to wait. By Chinese New Year, sellers may be in dire need of cash and willing to drop their price. Everyone is now having trouble making money and thinks carefully before they buy anything.’

Significant price drop

According to official figures, house prices have fallen by 6 percent in two years, but according to Bloomberg news agency the fall is 15 to 20 percent in major cities such as Shanghai and Shenzhen. In Baoding, real estate agents estimate the decline at 30 to 40 percent. “My cousin bought a house for 2 million renminbi (262 thousand euros) in 2018,” says Gao. ‘The same houses are now worth 500 to 600 thousand renminbi (65 to 78 thousand euros) less.’

There are still plenty of cranes and new residential towers on the Baoding horizon, as if nothing has happened. These are projects that started in the golden days of construction frenzy and price increases, but are coming onto the market amid oversupply. Now that real estate has lost its value as an investment object, there is a huge surplus of homes. China has according to The New York Times enough vacant apartments to meet a seven-year demand.

According to the rules of supply and demand, Chinese house prices should fall for years to come. But that’s not how it works in China. How the housing market evolves depends mainly on the government and whether it gives signals that prices may rise again. This can be done by relaxing restrictions on speculation. But for now, Beijing is sticking to limited measures, hoping to stabilize the market.

In large cities such as Beijing and Shanghai there is a small revival, but in a provincial town such as Baoding – a third-tier city according to the Chinese classification – there is hardly any effect. During this Golden Week, 17 percent fewer homes were sold throughout China than last year, according to research institution China Index Academy.

‘This is irreversible’

The real estate agents in Baoding also confirm a day after the Golden Week that they have not done good business. Hua has sold one apartment of the new construction project, with a discount of 10 percent compared to last year’s price, and is negotiating with two buyers. ‘But that’s nothing compared to last year’s Golden Week, when we sold more than ten.’

He thinks that the golden times will not return anytime soon, now that the Chinese government wants to replace real estate as a growth engine with the high-tech industry. “This is an inevitable trend in China’s economic transformation,” he said. “Some still hope that the real estate market will recover, but I think it is irreversible.”

In Baoding, many real estate agents have changed jobs in the past two years, but Hua says there is no point. “Everyone – property developers, ordinary people, the government – ​​is now going through a painful phase,” he says. ‘Even civil servants have to give in. I recently heard from a police officer that he has been waiting for his salary for two or three months. The decline in the real estate market affects everyone, even the government. We can’t do anything about it, all we can do is wait.’