Commentary on Political Economy

Saturday 15 January 2022


Thanks to Evergrande Group and other big developers suffering from massive debt burdens, China’s troubled real estate market has become a global economic concern.​ But it wasn’t always this way. In fact,​ it wasn’t long ago that there was a golden decade of China property investing.

And by a stroke of pure luck, I was able to​ get in on the ground floor.

It was 2004, and my wife and two kids had run out of patience trailing me around Asia: we’d lived in six cities in 13 years on various assignments for Reuters and The Wall Street Journal. We needed a place to call home, ideally a house—with a garden—near international schools. That’s how we ended up buying in the Beijing suburbs.​

The price for our unfinished duplex, bought off-the-plan from a state developer: about $130 per square foot. Lloyds Bank in Singapore provided a small mortgage. Like our middle class Chinese neighbors, we spent our weekends shopping for faucets, sinks, bathroom tiles, closets, flooring and light fixtures.

None of us had any idea that the bare concrete boxes we’d acquired—maopifang as they’re called—would become the investmentofe investmentof a lifetime.

China Evergrande Group, now in default, is prioritizing payments to migrant workers and suppliers.​ Above, a child plays in front of unfinished apartment blocks at an​ Evergrande site​ in Wuhan​ on Dec. 22. Photographer: Andrea Verdelli/Bloomberg

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Prices quickly doubled. Then doubled again. We sold our duplex and upgraded to a spacious villa in one of several nearby gated communities. These all had exotic English names, like Merlin Champagne Town and Chateau Regalia, and came with tennis courts and swimming pools. Ours was called Beijing Riviera. Jack Nicklaus built an 18-hole golf course right next door. Horse riding schools in the area catered to the children of the neighborhood’s nouveau riche.​

This was China’s Gilded Age. Almost by accident, we found ourselves living among the super rich. And it wasn’t just there: In cities all across the country, property was building wealth for a generation of homeowners who were fortunate enough to get in early on the​ greatest real estate boom in history.

I knew plenty of office workers on modest salaries—receptionists, book-keepers—who arrived at work in luxury sports cars​ and jetted off on holidays to Europe, all because of well-timed apartment purchases. Some owned two​ or three flats, or more. One middle-aged migrant from Sichuan province told me she owned six apartments in the city of Chengdu.

As prices kept on climbing, owning property became a national obsession, devouring more than 70% of all urban wealth. The home ownership rate rocketed from close to zero to more than 90%, among the highest in the world. I always knew when a fresh wave of feverish speculation was sweeping the country: real estate agents would flood my mobile phone with emoji-filled texts practically begging me to sell.​

Clusters of agents camped outside the guarded gates of Beijing Riviera, waving placards at passing cars advertising villas for sale. “Where’s the market headed?” I’d ask them. “If the government wants prices to go up, they’ll go up,” they’d chorus.​

In that case, why sell?​

We weren’t alone in calculating that this bull market could run and run. At some point, real estate along with the services and products it supported—everything from property management to production of kitchen sinks—reached 25% of GDP. Land sales kept local governments afloat. It seemed unthinkable that the central government would apply the brakes.

But now,​ it’s done just that.

President Xi Jinping has declared that “houses are for living in, not for speculation.” That’s an old line: Former premier Wen Jiabao often used it. Xi, however, seems serious this time as he pushes his “common prosperity” agenda aimed at making housing more affordable. It looks like he’s ready to take whatever pain is necessary to crush the speculation that the government itself encouraged—even required—to keep growth on track.

We sold at the right time, just before leaving China in 2018—again, a stroke of good fortune. Now, as property transactions and prices slump month after month, economists keep revising downward China’s GDP growth projections. Armies of real estate agents are being demobilized. Millions of migrant workers in the construction industry are melting back into the countryside. And vultures are circling around collapsing real estate conglomerates.

“If we call the past decade a golden age for the real estate industry, it is now trapped in the age of rust,” said Li Kai, Beijing-based founding partner of bond fund Shengao Investment, which specializes in distressed debt.

I’m interested in the impact on the psychology of middle class homeowners. Not families like ours who jumped into the market early, but those who arrived later to the party and took out large loans. As their mortgages sink under water, they have every right to feel betrayed: the growth-generating system that led them on has let them down.

Who will they blame?

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