Angry buyers who had prepaid for their homes - as the vast majority of Chinese buyers do - threatened to stop paying their mortgages. The impact has been evident - by August 2022, home sales by value were down nearly 21% year-on-year. The new no-nonsense regulations also happened to come into force at a time when China’s economy was wavering and home prices were beginning to fall from their highs in the third quarter of 2021. Between August 2020 and February 2021, the central government enacted three major pieces of regulation that precluded highly leveraged developers from borrowing to maintain cash flow (the so-called “ three red lines” policy) and constrained local governments’ ability to raise revenue via land sales. However, Beijing has long been concerned by the sector’s increasingly unsustainable mix of leverage, rampant speculation, and budgetary overreliance.
In 2021, local governments generated over 40% of their revenues from land sales.Nearly 28% of bank lending is extended to the sector. Property directly or indirectly accounts for over a quarter of China’s GDP.This has made real estate a fixture of China’s economic and financial system:
But how did we even get to a point where comparisons to the most epic financial collapse of the 21st century seemed even remotely reasonable? Too much of a good thingīetween 20, home prices doubled and developer profits quadrupled.
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