Chinese Real Estate Market Hits 18-Year Low Amidst Presale Challenges

The Chinese real estate market has hit an 18-year low in new-home sales, influenced by hesitant buyers due to halted construction from cash-strapped developers. Presale operations have declined by 30%, with governmental reforms in place to combat the crisis, yet prices continue to fall across major cities.

The Chinese real estate market, once a linchpin of the national economy, has plummeted to its lowest share of new-home sales in 18 years, according to a report by Nikkei Asia. This downturn is attributed to prospective homeowners' reluctance to buy, following a series of construction halts by financially distressed developers.

Preselling homes—essentially selling them before they are ready for occupancy—has been the predominant method for property transactions in China. However, these presales have dropped by roughly 30%. Moreover, new-home sales recorded a 21% decline from January to July this year, as per data from the National Bureau of Statistics.

The ongoing housing recession has deeply impacted real estate developers, many of whom have halted construction on presold properties since 2022. This has led to delays, sparking protests and mortgage strikes among frustrated homebuyers. The Chinese Communist Party has proposed reforms to the presales system and encourages the sale of completed properties only, to mitigate dissatisfaction and criticism.

Local governments have responded by offering tax breaks and extending credit lines to developers, contingent on the completion of homes before sale. However, this shift is expected to prolong the investment recovery period and increase construction costs for homebuyers by 20% to 30%, according to Nikkei Asia.

Despite potential improvements in sales, ongoing price declines remain a concern. Analysts doubt developers' ability to regain financial stability in the stagnating market. "The turnover of funds will slow, making it difficult for real estate companies to manage their business as aggressively as before," said Yusuke Miura, senior researcher at NLI Research Institute.

The bleak outlook persists, with new-home sales yet to show signs of bottoming out. Prices have continued to fall in 66 of 70 major cities this July, marking the 14th consecutive month of declines. Real estate developers are struggling to secure necessary funds, keeping the sector in turmoil.

(With inputs from agencies.)