From The Economist's 1843 Magazine, December 3:
Millions of people are waiting for homes that may never be built
Gu Lin chose the apartment at One Riviera because of its location: a quiet residential neighbourhood just a few kilometres south of Shanghai’s financial district and a short bike ride from the Huangpu river, which bisects the city into east and west. Although Gu had to pay a premium for such an area, he reckoned it made the flat more likely to hold its value if the property market, as he suspected it would, eventually ran out of steam.
He made a 70% downpayment on the 20m yuan ($2.8m) flat in March 2020. His wife and their child, along with Gu’s parents, were due to move into the three-bedroom home in spring 2022. Gu, who is from Shanghai and has a well-paid, management-level job, imagined strolling with his family beneath the 300 cherry trees the developer planned to plant next to the two residential towers. But almost two years after the family were meant to get the keys, One Riviera is still a building site.
Gu Lin is one of millions of Chinese people who ploughed their life savings into a property that may never get built. An unprecedented crisis in the real-estate sector, caused by a mix of rapacious developers, covid-19 lockdowns and misguided government policies, has left firms bankrupt and investors out of pocket.
The chaos is affecting many well-off Chinese – the people who have done well since the Communist Party opened up China’s economy in the 1980s. Some have stopped paying their mortgages, which in China often start long before newbuilds are completed. A few have staged demonstrations. So far protests have been small and sporadic, but politicians are worried by the prospect of metastasising unrest and a banking crisis caused by unpaid mortgages.
When we met at a Starbucks on the outskirts of Shanghai in August, Gu got straight to the point. He stands to lose about 14m yuan if he does not receive his home. Around 300 of his fellow buyers paid in full. Gu is a calm and understated man in his 40s. But he was visibly troubled as he explained his ordeal, often furrowing his brow.
Just months after he bought his flat, the Chinese government introduced a raft of policies designed to cool an overheating property market. Policymakers were concerned that big developers were accumulating too much debt. They also wanted to tame the companies, which had accrued too much market power for the Communist Party’s tastes.
The government restricted the amount of leverage property developers could take on, banning companies from having more short-term debt than cash. Policymakers hoped this could avert a financial crisis, stop house prices from rising so rapidly and discourage the speculation that led to China’s notorious ghost cities, where entire districts of empty homes sit unsold....
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