Speaker 1: Bloomberg Audio Studios, podcasts, radio news. It's been more than
Speaker 1: three years since China Evergrand Group collapsed and sent a
Speaker 1: shockwave through the country's property market. EVERGN shares down about
Speaker 1: thirty percent this week alone. That's, of course, the stock
Speaker 1: that's lost more than ninety percent of its value since
Speaker 1: the peak.
Speaker 2: The authorities are trying to ring fence this situation at Evergram.
Speaker 1: We know it is the most indebted developer in the world.
Speaker 1: You know, there's concern that you miss these payments, there
Speaker 1: could be cross default. The stunning fall of one of
Speaker 1: the country's largest builders marked the beginning of a property
Speaker 1: slump that continues to drag down the Chinese economy. Today,
Speaker 1: Chinese property crisis will probably not be resolved anytime soon.
Speaker 2: Real estate has gone down, stocks have gone down, salaries
Speaker 2: have gone down.
Speaker 1: China's real estate market was once valued at more than
Speaker 1: fifty trillion dollars and made up a full quarter of
Speaker 1: the economy, But now, more than three years later, the
Speaker 1: housing crisis doesn't seem to be getting any better. All
Speaker 1: across China, tens of millions of newly built apartments lie vacant.
Speaker 1: Developers are struggling to finish construction and homeowners are watching
Speaker 1: their property values plummet. All of this is putting the
Speaker 1: central and local governments under immense pressure to turn the
Speaker 1: property market around.
Speaker 2: So the big question is where are we in this
Speaker 2: property crisis and what has been done? Is it working?
Speaker 1: Lulu Chen is Bloomberg's editor for Asia Finance and Investing.
Speaker 2: And I would say that Seizinping and his government came
Speaker 2: up with this miracle pill, which is that they are
Speaker 2: going to let the local governments by the unsold inventory,
Speaker 2: access inventory and converted into affordable housing. Now, in theory,
Speaker 2: great idea, but on the ground it's running into all
Speaker 2: kinds of challenges.
Speaker 1: Welcome to the Big Take Asia from Bloomberg News. I'm Wanha.
Speaker 1: Every week we take you inside some of the world's
Speaker 1: biggest and most powerful economies and the markets, tycoons and
Speaker 1: businesses that drive this ever shifting region. Today on the show,
Speaker 1: China's Housing Rescue Plan. What is the Chinese government doing
Speaker 1: to save the property market, Is it working, and what's
Speaker 1: at stake if it fails. To take a closer look
Speaker 1: at what exactly the Chinese government has tried to do
Speaker 1: to boost the housing market, Lulu and other Bloomberg reporters
Speaker 1: decided to focus in on a city called junk Joo.
Speaker 2: Chung Sho is ground zero for a China's housing crisis.
Speaker 2: It was one of the first few studies that saw
Speaker 2: its real estate market crash. It was at the center
Speaker 2: of the mortgage boycotts if you remember a few years back,
Speaker 2: when people refused to pay their mortgages because the developers
Speaker 2: were not able to finish the construction on the houses
Speaker 2: that they already pre sold.
Speaker 1: Junk Jo is a city of about twelve million people.
Speaker 1: It's located in the Yellow River Valley in the heartland
Speaker 1: of China.
Speaker 2: It's the capital of Nam Province and that used to
Speaker 2: be one of the nation's forest provinces. Junzhou these days
Speaker 2: is most famous for being home to the largest iPhone factory,
Speaker 2: Fox Cohn. They have their largest factory there.
Speaker 1: The arrival of factories supporting Fox KHN and the ev
Speaker 1: maker byd kicked off a period of rapid growth in
Speaker 1: the city and new residential communities sprouted up.
Speaker 2: Before the market crash. Junho was super ambitious. They wanted
Speaker 2: to attract talent and investment. They wanted to become a
Speaker 2: financial center, a logistics hub, hub and they even built
Speaker 2: this massive artificial lake and Mammadde Financial Island.
Speaker 1: But Lulu says, even in the early days, there were
Speaker 1: signals that jung Chou probably had overbuilt.
Speaker 2: I was reporting a story about China's property bubble about
Speaker 2: twelve years ago, and we did look at Jungzhou, and
Speaker 2: that was a place back then already attracted a lot
Speaker 2: of skepticism. People were calling a ghost town. And even
Speaker 2: back then it was you could see construction everywhere and
Speaker 2: plots and plots of fields being converted into land for
Speaker 2: real estate. Given how things have panned out, for sure,
Speaker 2: and I think like the skepticism of them being overreaching
Speaker 2: and taking on too much debt was evident even more
Speaker 2: than a decade ago.
Speaker 1: Bloomberg reporters recently traveled to Junchhou, and Lulu says the
Speaker 1: city feels less of a ghost town these days, but
Speaker 1: it still looks like a gigantic construction site.
Speaker 2: If you travel to Junjo today, you would see the
Speaker 2: whole city just rife with half finished projects and government
Speaker 2: loans are having some effect. Cranes are warring again, but
Speaker 2: it's still stacks and stacks of empty buildings, empty skyscrapers,
Speaker 2: and these massive boulevards with very few cars, lands that
Speaker 2: were slated for development sitting idle, so much so that
Speaker 2: locals have turned them into vegetable gardens.
Speaker 1: In the decade through twenty twenty, junk Jou's urban area
Speaker 1: more than doubled, but the population only grew less than
Speaker 1: fifty percent. And Lulu, why is it that junk jo
Speaker 1: never realized its goals? Why can't it just build its
Speaker 1: way into prosperity.
Speaker 2: Yeah, well location, so Junjo is in the heartland of China,
Speaker 2: and the context for their ambition is while they were
Speaker 2: plotting this out, there were one hundred other cities who
Speaker 2: wanted to be the saying they all wanted to be
Speaker 2: technology hubs, they all wanted to be financial hubs. So
Speaker 2: think of Junjho, but times by dozens or even hundreds.
Speaker 2: And this was happening across China at the time.
Speaker 1: And when the city government in junk Joe finally realized
Speaker 1: that they were in trouble in twenty twenty two, they
Speaker 1: sprang into action.
Speaker 2: Juanjou threw everything on the wall after the property crisis happened.
Speaker 2: They've tried so many ideas that officials from other cities
Speaker 2: have been flocking there to study the model. They gave
Speaker 2: loans to developers, trying to help them complete and finish projects.
Speaker 2: They offer to buy surplus units, and even subsidies payments
Speaker 2: to residents who would replace their outdate at homes.
Speaker 1: Junk Cho's government purchased more than one hundred thousand unsold
Speaker 1: units from real estate developers. It didn't say how much
Speaker 1: money it spent, but local media Taishin reported the amount
Speaker 1: could be around thirty billion yuen or about four billion dollars.
Speaker 1: According to a state backed magazine, about three quarters of
Speaker 1: the funding comes from commercial bank loans and the interest
Speaker 1: rate was only three percent. And what did they do
Speaker 1: with the properties that they bought.
Speaker 2: They convert the mental affordable housing, which is something that
Speaker 2: she has tried to champion. And these public units would
Speaker 2: be both for sale or for rent.
Speaker 1: And how is that going slowly?
Speaker 2: Is going slowly? I think on the rental friend they
Speaker 2: made some progress in attracting more people. On the sales front,
Speaker 2: it seems that there's simply not enough demand where people
Speaker 2: are willing to buy public housing even at such low
Speaker 2: prices because of the belief that the prices are still
Speaker 2: going to drop.
Speaker 1: In theory, it sounds like a great idea. By purchasing
Speaker 1: these apartments and converting them into public housing, the government
Speaker 1: is trying to kill two birds with one stone to
Speaker 1: absorb the oversupply on the market and to answer present
Speaker 1: She's call to make housing more affordable. But Lulu says,
Speaker 1: in reality, there are a lot of challenges on the ground.
Speaker 2: So something as specific as finding enough apartments that fit
Speaker 2: the criteria of what the government wants. Often they want
Speaker 2: to find entire apartment blocks of small units that can
Speaker 2: be converted into public housing, and that's a huge challenge
Speaker 2: in itself. They also need to access cheap financing to
Speaker 2: make money off of these projects, and then they have
Speaker 2: to persuade the developers to sell these apartments at steep discounts,
Speaker 2: which is another at tension. Goldman Sachs estimates that a
Speaker 2: discount of thirty percent may be needed when they buy
Speaker 2: these properties from the developers. What High Securities was even
Speaker 2: more aggressive. They said that need to mark down the
Speaker 2: property prices by fifty percent when they buy them from
Speaker 2: the developers.
Speaker 1: That's quite a bit.
Speaker 2: Yeah yeah, So the developers aren't willing or simply can't
Speaker 2: afford to do this.
Speaker 1: What the government ideally wants is that in some ways
Speaker 1: the developers, even though they're selling it for discount, they
Speaker 1: can at least.
Speaker 2: What offload the inventory since they're gonna go belly up
Speaker 2: or get liquid at to restructured.
Speaker 1: It sounds like the government has to jump through a
Speaker 1: lot of hopes to make that happen. Yes, and Lulu,
Speaker 1: is this strategy working in Junjo?
Speaker 2: I don't think that's working. Junjo's property prices are still falling,
Speaker 2: and what's happening in Junjo is very indicative of what's
Speaker 2: happening in the rest of China.
Speaker 1: What is happening in the rest of China. What else
Speaker 1: is Beijing doing to shore up the property market and
Speaker 1: can they succeed? That's after the break. China's property crisis
Speaker 1: has become a massive headache for the world's second largest economy.
Speaker 1: Across the country, there are tens of millions of unsold homes.
Speaker 2: Yeah, so, Bloomberg Economics estimates that the country has as
Speaker 2: an inventory of about five point two billion square meters
Speaker 2: of unsold housing. It would be the equivalent of sixty
Speaker 2: million apartments.
Speaker 1: Sixty million apartments, that's enough to house the entire population
Speaker 1: of France. Bloomberg Economics estimates that it would take more
Speaker 1: than four years to sell that inventory. That's assuming sales
Speaker 1: don't keep falling Lulu. These numbers are staggering. What else
Speaker 1: is Beijing doing to support the property market.
Speaker 2: Yeah, They've made it easier and cheaper for people to
Speaker 2: buy homes. They've lowered the existing mortgage rates, which would
Speaker 2: lessen the burden for homeowners. In addition, the government has
Speaker 2: been easing its monetary and fiscal policies since late September,
Speaker 2: and they've also provided lending to developers so they can
Speaker 2: finish approved projects. And this is what we commonly refer
Speaker 2: to as the white list. The goal for whitelist loans
Speaker 2: is to reach Fortrillionnuan, which would be about five hundred
Speaker 2: and fifty billion dollars by the end of twenty twenty four.
Speaker 2: That amount was more than three trillion yuan as of November.
Speaker 1: That's a huge number. That's half a trillion US dollars.
Speaker 2: Yeah, that's one of the issues. And then the other
Speaker 2: thing is the whitelist loans only address the issue of
Speaker 2: finishing unbuilt projects. Right, there's the other part of the issue,
Speaker 2: which is this excess supply of inventory, and unless the
Speaker 2: government can address this excess inventory issue, the prices are
Speaker 2: not going to rebound.
Speaker 1: Even with the tons of money the central government is
Speaker 1: pouring into the market to turn the property crisis around,
Speaker 1: these fixes don't seem to be working so far. Used
Speaker 1: home prices have declined for thirty nine straight months through
Speaker 1: October to a level about thirty percent below the July
Speaker 1: twenty twenty one peak. Lulu says there's a perfect storm
Speaker 1: of structural issues that helps explain why the government isn't
Speaker 1: really seeing the results they're hoping for.
Speaker 2: Demographic challenges, which means that people are aging, population is dropping,
Speaker 2: not enough demand. Also, the developers persistent liquidity crunch, unfinished
Speaker 2: homes weighing on buyer confidence, and families stuck with this
Speaker 2: mindset that home prices won't rise. Ceazingping has made it
Speaker 2: quite clear that he doesn't want housing as a speculative investment.
Speaker 2: With that kind of messaging, people are going to interpret that.
Speaker 2: The overarching guidance is still that there is no upside
Speaker 2: in investing in real estate, and what would be the
Speaker 2: point in buying apartments.
Speaker 1: Fundamentally, it all boils down to simple economics. There's too
Speaker 1: many apartments and there's not enough people who want to
Speaker 1: buy them, And Lulu says, if the government can't figure
Speaker 1: out a way to ease the crisis and stabilize the
Speaker 1: housing market, there could be even bigger consequences for the country.
Speaker 2: At this moment, the property crisis is the greatest threat
Speaker 2: to China's economy, and to a certain extent, it's the
Speaker 2: government's owndoing because they're policy restrictions on developer leverage exacerbated
Speaker 2: and triggered this unfolding of the real estate sector that
Speaker 2: was already facing so many structural issues. You combine this
Speaker 2: with the job losses, youth unemployment, China's export challenges, Trump tariffs,
Speaker 2: and aging society that where all these households are counting
Speaker 2: on real estate for about eighty percent of household wealth.
Speaker 2: And what you have to is the perfect storm.
Speaker 1: This is the Big take Asia from Bloomberg News. I'm Wanha.
Speaker 1: Listen to our previous episode on China's real estate meltdown
Speaker 1: after the nation's biggest developer, Country Garden, defaulted, and how
Speaker 1: it upended hundreds of thousands of lives. You can find
Speaker 1: the link in the show notes. This episode was produced
Speaker 1: by Young Yah Naomi Um and Jessica Beck. It was
Speaker 1: mixed by Alex Suguiera and fact checked by Adrianna Tapia.
Speaker 1: It was edited by Caitlin Kenney and David Scanlan. Naomi
Speaker 1: Shaven is our senior producer, Elizabeth Ponso is our senior editor,
Speaker 1: Nicole Beemster Bower is our executive producer, and Sage Bauman
Speaker 1: is Bloomberg's head of podcasts. Please follow and review The
Speaker 1: Big Tick Asia wherever you listen to podcasts. It really
Speaker 1: helps new listeners find the show. See you next time.