The frenetic pace of house building used to be emblematic of China’s rise. Now confidence in the model has collapsed
Save time by listening to our audio articles as you multitaskshows how bad the crisis has become. . Buyers are dropping out, borrowers are on mortgage strikes and developers face a liquidity squeeze. In July the value of new home sales fell by 29% compared with a year earlier. Country Garden, China’s biggest developer, has reported that its profits have collapsed and says the market “has slid rapidly into deep depression”.
Things started to go wrong last year with the default of Evergrande, a giant developer. A year later Mr Xi’s strategy lies in tatters as activity has faltered. The crisis is now a political, as well as economic, problem. In parts of the country, distress is turning into defiance. Mortgage-holders have banded together, threatening to stop repaying their loans if work does not resume on long-overdue homes.
Another part is that the government’s original plan did not resolve the conflicts between growth and financial prudence, and between citizens’ needs and the incentives of crony officials and developers. The three red lines have deprived property firms of the cash they need to finish building flats that they had sold in advance. Delays in finishing past projects have in turn made it harder to sell new ones to disgusted buyers. Weak sales have worsened the cash crunch.
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