Buying property in the small town of Yanjiao was once the first choice for many white-collar workers who did not have a permit to buy a house in Beijing. Like New Jersey is to New York, Yanjiao is less than two hours to downtown Beijing across the Chaobai River to the west and offers competitive property prices with a reasonable commute. But many of those dreams have now been dashed with Yanjiao a microcosm of the downfall in China’s property sector, which has far-reaching implications on personal fortunes, economic growth, financial stability and commodity suppliers. After property prices in Yanjiao halved, and some even dropped below the value of the mortgage, some owners chose to suspend their repayments. It’s an abnormal phenomenon that many investors are trapped [in Yanjiao] and some even turned into negative assets Zhang Dawei But their decisions were not without consequences with one case highlighted on social media last year seeing a 35-year-old sued by the Bank of China for refusing to pay their 16,800 yuan (US$2,640) instalment and remaining 2.82 million yuan (US$443,000) mortgage. It is, however, just the tip of the iceberg as there have been more than 600 similar disputes heard at local courts since 2019, according to verdicts published by China Judgements Online. The court in the city of Sanhe, which is the administration centre for Yanjiao, has listed around 1,000 flats for auction since May 2020 on e-commerce platform JD. “It’s an abnormal phenomenon that many investors are trapped [in Yanjiao] and some even turned into negative assets,” said Zhang Dawei, a senior analyst with property agency Centaline. According to a central bank survey, property accounted for 59.1 per cent of household wealth in 2019, 28.5 percentage points higher than American families, while it accounted for 75.9 per cent of their total debt. Spurred by the rumours that Yanjiao would be absorbed into Beijing, Yanjiao’s population doubled in a decade to 629,554 at the end of 2020. News of possible coordinated planning or underground train connections saw home prices rise eightfold in 10 years to 40,000 yuan per square metre (3,716 per sq ft) in 2017. Prices have now halved partly due to a relaxation of local property regulations, according to Zhang, who does not see prices rising back to the previous highs due to low investor confidence. The government is still deflating bubbles. We must realise that it’s just a commuter town in the Greater Beijing region and its home price should be in line with its positioning Zhang Dawei “The government is still deflating bubbles,” he added. “We must realise that it’s just a commuter town in the Greater Beijing region and its home price should be in line with its positioning.” Beijing initiated curbs on property transactions, stressing that properties were to live in and were not for speculation, and coupled with the coronavirus, have left many developers struggling as land transactions and property sales have slowed significantly. In China last year, the value of property sales grew by just 4.8 per cent to 18.2 trillion yuan (US$2.9 trillion) compared to 8.7 per cent growth in 2020. The amount of floor space sold also grew by just 1.9 per cent last year, according to data from the National Bureau of Statistics, with real estate investment growth falling to a 22-year low of 4.4 per cent last year. Chinese provinces lower economic growth targets for 2022 as headwinds mount Caution from developers is likely to continue into the first half of the year as government policy relaxation has brought no obvious improvements to cash flows. “The liquidity crisis hasn’t been solved,” Ping An Securities analyst Yang Kan said last week. “Policymakers should increase support to shore up market confidence.” Moody’s analyst Kelly Chen also said last week that the value of national property sales is likely to decline by 5-10 per cent in 2022 due to constrained funding access and weaker homebuyer confidence. The international ratings agency has aggressively downgraded the ratings of Chinese property developers after the problems surrounding Evergrande were revealed in the third quarter of last year. In the past two months, it has announced 15 negative rating actions because of increased concern about the developers’ liquidity and refinancing risks, while also withdrawing its ratings for seven issuers. The projected fall is also set to weigh on China’s overall economic growth and threaten the state-controlled financial system, which is heavily exposed to the property sector. Property related outstanding loans rose by 7.9 per cent from a year earlier to 52.2 trillion yuan (US$8.2 trillion) as of the end of last year, or 26.3 per cent of the total bank lending, according to data from the People’s Bank of China. China’s home privatisation push in 1998 in the wake of the Asian financial crisis quickly became a pillar of the national economy as it involved a wide range of upstream material producers and downstream appliance makers and furnishing services. IMF cuts China growth forecast amid pandemic, property sector pressure The added value of the real estate sector was 7.3 per cent of the national gross domestic product in 2020, according to official data. But a weakening property market was one of reasons cited by the International Monetary Fund for it slashing China’s 2022 growth estimate by 0.8 percentage points to 4.8 per cent. “A sharper-than-expected slowdown in the property sector could trigger a wide range of adverse effects on aggregate demand, with negative feedback loops to the financial sector and could generate international spillovers,” the Washington-based organisation warned. Beijing has refined property financing policies after the Evergrande debt crisis led to ripple effects last year, while it cut the five-year loan prime rate, the mortgage reference rate, by 5 basis points this month.