China's real estate market was already in a state of decline in early 2023, but it experienced a short-lived rebound as the Chinese Communist Party ordered local government units to issue policies bailing out real estate companies. By the end of April, the mortgage rate for first-time home buyers in more than 40 major cities had dropped to below four percent, thanks to government intervention. However, this optimistic outlook failed to live up to analysts' expectations by April. (Related: Home prices DECLINE in 31% of the US, mostly in Democrat-controlled cities where crime and high taxation are rampant.)
According to a financial statistics report for April released by China's central bank, mortgages decreased by 241.1 billion yuan ($34.1 billion) that month. Among those, medium- and long-term household loans decreased by 115.6 billion yuan ($16.3 billion,) while short-term mortgages decreased by 125.5 billion yuan ($17.7 billion).
Public statistics show that many major Chinese cities reported double-digit declines in the sales of previously-owned homes. The worst decline was Hefei's 40 percent, followed by Beijing's 37.3 percent, Hangzhou's 32.7 percent, Shanghai's 26.71 percent and Nanjing's 13 percent.
Economists warned that the only way for the Chinese real estate market to stay afloat is for the communist government in Beijing to continue intervening. This means continuing the introduction of support measures and the relaxation of rules for first-time home buyers. China's main housing and financial regulator, the China Banking and Insurance Regulatory Commission, has already ordered local real estate brokers to reduce fees for housing transactions and leasing services to stimulate activity and development.
However, what the Chinese Communist Party (CCP) seems to be doing is focusing too much on price controls, so much so that it has tightened its grip even further on the real estate market and is actively preventing buyers from deviating too high or too low on the prescribed prices for new homes.
When two real estate developers in Kunshan attempted to cut prices by a large margin to allow more home buyers to afford homes, Chinese regulators penalized them for cutting their prices too much. These regulators claim the developers "disrupted the normal order of the real estate market and caused social instability."
"The reason why the communist regime won't let real estate developers lower prices is very simple," wrote Qu Kai, a Japan-based commentator on Chinese current affairs. "The chain reaction caused by price cuts will instantly burst the bubble of China's property market, causing a series of economic crises that would be difficult for the CCP to manage."
As the Chinese government continues to intervene in the market in an anti-competitive way, experts warned this current crisis will sooner or later affect banks – and once the financial sector is affected, the entire Chinese economy could be in crisis.
"The consequences of real estate declines and residential mortgage defaults will eventually be passed on to banks," warned financial expert Fang Qi. This will "further plunge [banks and real estate] into chaos, thus causing a vicious cycle."
Even if the CCP were to intervene in a moderated way that economists say could be beneficial to the real estate market, analysts warn the effect of these supposedly positive stimulus programs would only be measured. "We see limited scope for big housing policy stimulus given that mortgage rates and down-payment ratios in many cities are already at record low or multi-year low levels," wrote analysts at Barclays in a research note.
Learn more about the collapse of the housing market at HousingBomb.news.
Watch this video from ITM Trading, Inc. as Lynette Zang, the company's chief market analyst, discusses why experts think the commercial real estate sector is the next industry to collapse.