NewsChina's real estate collapse: Young professionals left retraining

China's real estate collapse: Young professionals left retraining

China has a problem with the real estate market
China has a problem with the real estate market
Images source: © Getty Images | Kevin Frayer

8:18 AM EDT, June 18, 2024

A collapse in the Chinese real estate market, caused by the overexpansion of developers and government restrictions, has eliminated hundreds of thousands of jobs. Young professionals who not long ago saw the sector as a chance for social advancement now have to retrain.

China is still feeling the effects of the real estate market crisis. The reasons for the sector's collapse are quite clear to specialists. As Bloomberg explains, for years developers were selling apartments faster than they could build them and were taking on debt for rapid expansion. When the government suddenly put its foot down, banned speculation, and restricted easy borrowing, it quickly became apparent that the industry was a colossus on clay feet.

China pays the price for the sector's downfall

The fall of developers such as Country Garden Holdings Co. and China Evergrande Group, who failed to meet bond obligations, turned out to be the tip of the iceberg.

The true face of the crisis is not only millions of Chinese people deprived of the chance to own a home. Empty construction sites have become symbols of China's weakness and the ineffectiveness of Xi Jinping's economic policy. The result of the crisis is also the broken careers of a whole generation who planned to tie their futures to the industry, reports the agency. Young Chinese in the development sector saw a chance to move up to the affluent middle class. They are forced to change their qualifications on an unprecedented scale, explains Alex Capri, Senior Fellow at the National University of Singapore.

According to the analytical firm Ke Yan Zhi Ku, quoted by Bloomberg, about 500,000 people left the real estate job market over three years up to 2023. This figure does not include workers from related industries such as construction and marketing.

She left real estate, now sells supplements

Bloomberg describes the stories of people who had to abandon their plans associated with the real estate sector. One of them is Ivy Zhang. She claims to have helped sell nearly $139 million of Country Garden homes. Today, she sells supplements on social media. Due to the drastic drop in income, she and her husband have postponed their decision to have a child. She also had to lower her standard of living significantly.

"If you still want to live as you did before, you're dreaming," said Zhang in an interview with the agency. "If I used to spend 3,000 yuan, now I wonder how to lower it to 2,000. Later, I will try to cut it down to a thousand. To survive," she stated.

Another victim of the crash is Charlie Zeng, a former employee of development firms who earned more than $250,000. After the crisis hit, he spent a year looking for work. After going through 70 job interviews, he received several offers, but ultimately all were retracted.

The crisis will deepen

Experts expect home and commercial property sales to drop by 45% compared to 2021, based on data collected by Bloomberg and estimates from Fitch Ratings Inc.

The value of new home sales by the 100 largest development firms dropped by about 45% year over year in April. Even China Vanke, once seen as a sure winner given state support, is under pressure, and its credit rating has been downgraded to junk status.

The latest data from the Chinese real estate market is fueling concerns. They indicate a further deterioration in the sector. Declines in sales in both the primary and secondary markets have been recorded in all city categories. New home prices fell for the twelfth consecutive month in May, with the rate of decline the worst in nearly a decade, reports Bloomberg. Additionally, price drops were recorded in 67 out of 70 monitored cities, the worst result since 2015. Particularly severe were the price drops in smaller cities.

China saves the real estate sector

The Chinese authorities have implemented a bailout plan. In mid-May, they announced a broad stimulus package aimed at boosting activity in the housing market in China. This decision reflects China's deep concern for the condition of this key economic sector. According to analysts, this is the largest government intervention in this field since the Global Financial Crisis.

The Chinese government's solution includes $42 billion in financing from the central bank, which development companies use to purchase excess unsold homes. The acquired units are then to be converted into social housing. According to industry experts, this move is reminiscent of rescuing financial institutions during the global crisis of years past.

China also aims to stimulate the real estate market through significant relaxation of credit policy. The People's Bank of China lowered the minimum down payment for purchasing property to a record low of 15%. 5 percentage points also reduced this requirement to 25% for buying a second home. Additionally, local authorities can set final interest rates for mortgage loans.

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