CHINA Property Spirals

Hi, welcome back to Joe blogs. In today's episode, I want to provide you with an update as to what's happening in the economy in China, and specifically to talk about the property sector. Now, if you follow the channel, you'll be aware that property has made up around 25 to 30% of GDP historically in China. However, that percentage has been falling as a result of the fact that the property market has been in free fall for the last three years. And the latest data that we've now got for April shows some very concerning trends. And this is actually relating to existing homes because I'm not sure whether you'll be aware, but there are restrictions on home buying in China. So if you buy a new property in most of the big cities, there are restrictions in terms of when you're allowed to sell that property, you have to hold it for a minimum period of time. However, some of those restrictions are now being lifted and that potentially could cause the property sector to go into further free fall. We could see it getting worse. Now we start off by looking at what's going on with new house prices because they still represent the majority of the market. Historically it represented more than 90%. However, over the past couple of years, that percentage has been coming down, but it still represents more than two thirds of all of the properties that are being purchased in China. And as you can see from this chart, which shows the movement in new house prices over the past 12 months, we have seen a fall of 4.5% for the most recent data. And the obvious thing to take away from this chart is that prices have fallen in every single one of the past 12 months. And if you put yourself into the shoes of a home buyer in China, if you're constantly seeing prices going down every single month, there isn't really an impetus to get, to get into the market and buy property because you don't want to buy something that then falls in value immediately. You want to buy a property and then sit back and watch it appreciate. And it's estimated that 70% of all household wealth in China is in real estate. So basically people have put almost three quarters of their life savings into property. And obviously when prices are going down every single month, that means that your wealth is also going down because you're watching the value of your investment falling. If we expand the scale of this chart to show what's been happening over the past three years, you can see that prices have been in negative territory since May 2022. So for the past three years, there was actually a very small blip in May 23 when prices rose by 0.1%. So not exactly anything to write home about, but the overall trend here is that prices year on year have been going down. And I thought it was worth talking about the cumulative impact of that on the value of your property. So if we have a look at this worked example, if we assume a property that was valued at $100,000 that you purchased in March 23, so you've been holding it for the last two years in the 12 months between March 23 and March 24 new house prices fell by 3.9%. So at the end of that first year of ownership, your hundred thousand dollar home would only have been worth 96,100 representing a fall of 3,900 or 3.9%. So that's not going to make you feel particularly excited about your new home purchase, but unfortunately things have got worse over the past 12 months. Prices have fallen by a further 4.5%. So that means that the 96,100 value a year ago would now only be $91,775. So that represents a fall in value since you purchased two years ago of 8,224 representing a fall of 8.2%. And the reason I wanted to share this is really just to put into perspective why the property market has soured for most Chinese investors in the past. In the first 20 years of this century, when you bought a property for $100,000, you would have expected it to go up between five and 10% every single year. So within two years, you'd have been thinking it was worth maybe 110, maybe 115, maybe $120,000. So you'd be feeling $20,000 richer. However, as we can see from this example, anything that you bought two years ago would now be worth around $90,000. So you've lost $10,000 and that's on top of any mortgage payments that you're having to make. So this has really taken the shine of the new home market in China. People are now shying away from buying new properties, but actually the situation has got worse. This chart shows what's been happening with new home sales over the past 12 months. And you can see that in April, 2025, there was a 9% fall in new home sales. The scale on the right-hand side here goes from 9% positive at the top to minus 40% at the bottom. So that's why 9% doesn't look very big because we've got quite a large scale here. And you can see that over the past 12 months, there have been some really serious falls in new home sales. In September, they were down by almost 40%. So that is a massive fall in any market. When you're talking about the housing market, obviously it has a huge impact on people's lives because that's what they put most of their money into. Now I want to talk about what's going on with existing homes, because you can't just keep selling new homes forever. At some point you've got all of these homes that people live in and own. And so they might want to start trading them. And that's why there's been an increase in existing home sales over the past few years. They now represent around 33% of all sales that are happening in China. But the reason why new home sales outstrip existing home sales is because of the restrictions that I mentioned at the start of today's video. And this table shows a summary of the restrictions that were previously in place for 10 of the largest cities in China. So if we start off with Shanghai, which has a population of over 30 million people, that's bigger than a lot of countries. But this is just one city in China. And previously there was a five year holding restriction in the central areas of Shanghai. So basically if you bought an apartment in central Shanghai, you weren't allowed to sell it for five years. Now there's been some changes in the policies recently to try to get the market kickstarted again, but that hasn't actually been completely lifted. It's only a partial lift and resale is now allowed after owning, obtaining an ownership certificate. So you have to apply for approval to sell your property. And I don't know the full details of what you need in terms of getting that ownership certificate, but I would imagine you need to be a resident of Shanghai because for a lot of the cities, they don't want people from overseas or from other cities buying up lots of property as investments and then leaving them empty. So it would probably be quite difficult to get that ownership certificate. Beijing, which is one of the second largest city with 22.6 million people. Previously there was also a five year hold for all residents that's now been reduced to three years and there's further easing in the outer district. So you still have to hold it for three years. And as we've just seen prices have been going down in every single month for the past three years. And then we've got a variety of other cities here. I won't go through every single one of these, mostly because I'm going to struggle to pronounce most of them. Um, because my Chinese, my Mandarin isn't that good, but you can see there are some absolutely monstrous cities in China, 18 million for Chongqing. Guangzhou has almost 15 million. Tianjin almost 15, Shenzhen 13.5. So we've got some huge cities. And when you think about 13 or 20 million people living in a city, obviously there is going to be probably around about five, 10 million properties in that city. So we're talking huge numbers here. And you can see in terms of the previous resale restrictions for a lot of these cities, there was a minimum hold period of between three and five years. So once you bought it, you weren't allowed to sell until you don't live for three or five years. And obviously what's happened in the past three or five years has been a complete disaster for all of these people who bought new properties. Now there have been some of lifting of these restrictions. You can see that in Chongqing, uh, actually haven't been any changes in Guangzhou. It's been fully lifted and immediate resale is permitted. So I can only imagine that the market in Guangzhou is one of the worst in China if they've had to change the rules entirely, but you can see that there's been some changes in most of the cities. So China is appreciating the fact that people are holding their life savings in these properties. And if you can't sell them, obviously you can't get access to all of your money. And that's not a great situation. So things are starting to change. So what's happening with existing home prices? Well, this chart shows the movement in existing home prices over the past 12 months. And the scale on the left-hand side of this chart starts at the top at 0% and goes down to minus 9% at the bottom. So as you can see, the obvious takeaway here is that in every single one of the last 12 months, existing home prices have fallen. They're all in negative territory. And the most recent data for April 25 shows that year on year existing home prices fell by 7.2%. But unfortunately the situation is worse from China's point of view, because when we take into account what's going on with the volume of sales, this chart shows the year on year movement in the volume of sales. You can see once again that the scale goes from zero at the top to minus nine at the bottom, there has been a 7.5% fall in existing home sales. So despite the fact that these restrictions have been lifted, which you would imagine would have led to an increase in sales, it certainly led to an increase in property listings. Lots of people are trying to sell their home. They're not actually achieving that because year on year less homes have been sold in April 25 than were sold in April 24. And one of the reasons for that is because you don't want to accept a really low offer on your property. You want to sell it at a profit. You don't want to be selling a property that you bought three or five years ago for a huge loss. So you can put your property on the market at an asking price, but if people aren't giving you that asking price, it's not going to sell. And so we're seeing a reduction in the volume of sales, which is slightly counterintuitive because you would have expected as prices go down, that volumes would go up, but nobody wants to sell at a massive loss. And if we have a look at what's been happening over the past three years to house prices for existing homes in China, you can see that it's been an absolute bloodbath. So once again, here the scale on the left hand side goes from zero at the top to minus 9% at the bottom. And in every single month in the past three years, there has been a fall in existing home prices. So anybody that invested into property in the past three years has lost money in China. And this is a complete disaster because this has been the main form of investment that's been allowed in China. The rules and regulations were lifted a long time ago and people were allowed to put money into property. That's why one of the reasons why there was a huge boom in the sector, as well as the big property developers building millions of apartments all over China. And people saw this as a no lose gamble. You put money in, it went up in value and therefore you felt richer. But as you can see from this chart, the opposite has happened in the past three years and things are getting worse. When you look at the trend of this chart, obviously it's completely downward. It's increasing. So the fall in the price of existing homes is actually accelerating. And one of the reasons for that is because there's more and more properties coming onto the market. So simple economics tells you that when there's an increase in supply and not an increase in demand, then prices will go down. And that's what's happening in the property sector in China. And I wanted to go through a worked example of an existing home price in China over the past three years. So once again, if we assume a property with a value of $100,000 that you purchased in March, 2022, which was at the beginning of that chart that we just looked at in the first year, existing home prices fell by 2.6%. So by April 23, your $100,000 home was worth 97,400. So that represented a fall of 2.6%, $2,600 lost the following year. House prices fell by 5%. So your $100,000 home two years into your ownership was only worth $92,530, representing a total fall of 7.4%. So at that point you'd lost almost $7,500, but things unfortunately have got worse because in April 25, prices fell by a further 7.2%. So your $100,000 home that you purchased three years ago is now only worth $85,867, representing a total fall in value of over $14,000 or 4.1%. And this chart really puts into perspective why the property market in China is such a disaster at the moment. Because when you're looking at figures like this, when you're thinking, I've just lost almost $15,000 on my $100,000 purchase, obviously it doesn't encourage you to go back into the market and it certainly wouldn't encourage you to sell your property because the only price you're going to get is that $85,500. So you're locking in that loss. So for a lot of people, they're hoping that the property market recovers, it bounces back and they can get back into profit. But when you're talking about a 14% fall in a three year period, it's going to take an enormous recovery in the market for people to be able to get back to a profitable situation. And it certainly doesn't look likely at any point in the near future because as more and more restrictions get lifted and more people are able to sell their existing property, because at the moment, quite a lot of people are still locked in. They don't actually have the option of selling, but as more people get that opportunity, it's likely that the supply will continue to increase. That probably means that prices will continue falling. And so this situation becomes a nightmare, vicious circle for most property owners in China. And as I said at the start of today's video, property makes up somewhere between 25 and 30% of GDP. And so that represents an absolute nightmare for the Chinese economy. So what's the summary and conclusion today? Well, I wanted to post this video because we've been talking about the property sector in China for more than three years now, ever since I made my first video on Evergrande, which at that time was the most indebted company in the world with over $300 billion worth of debt. Evergrande has now gone bust. It's in liquidation. It's a history event. It no longer exists, but the property market is still existing. Obviously all of the properties that Evergrande built and all of the other big developers are still there for lots of people in China. They saw this as their way to get rich. They wanted to buy into property and then watch it grow in value, sit back and think what a great job I am now quite wealthy. But unfortunately, what we've seen from today's video is that the opposite is now happening in China. Property values are falling both for new builds and also for existing homes. And in fact, existing homes are falling in value at a faster rate than new build properties. And that represents a major problem because all of the millions, the tens of millions, probably hundreds of millions of Chinese people who have bought property over the last 20 years are now worried that property is going to be worth less than it was when they bought it. And in fact, if you bought anything in the last three or four years, it is definitely worth less than what you paid for it. Probably six, seven, maybe eight, possibly even 10 years. We are looking at a complete wipe out here of anybody that's invested into property. And we know from previous discussions that a lot of people actually doubled down. They invested into multiple properties. Lots of investors decided that they were going to buy lots of properties and then rent them out. And obviously we've now got ghost cities. We've got whole buildings that are virtually empty in terms of people. But the problem that we've got here is that this looks very difficult for the Chinese authorities to turn around. They've tried a number of different initiatives to try to kickstart the market. They've changed the restrictions on housing sales. So they're now allowing people in existing properties to be able to sell them. And they've also allowed the government to nationalize some properties. So they're able to buy large chunks of unsold property from the property developers. Some of those properties weren't even built. So they're trying to do things to kickstart the market. They're making mortgages easier to get hold of and also lowering the price of them. But unfortunately, what we've seen from today's data is none of that is working. We are seeing prices continuing to fall. We're seeing the volume of sales continuing to fall. That tells us that there is no demand. Nobody wants to buy property, but there is certainly a lot of supply and more supply is coming because these existing homes are now coming onto the market. All of that is going to drive down prices further, which is going to mean there'll be less demand and more supply. And this really could get into a nightmare vicious circle from China's point of view, where we see the bottom falling out of the market prices, continuing to plummet sales volumes, continuing to plummet. And that's a disaster for all of those property developers that are still left. And there are some because the Chinese state is sponsoring a lot of them. They won't be able to make any sales and so they will be in difficulty, but the whole sector and the industry is in the toilet at the moment. And because this is represented around 25 to 30% of GDP, that represents a major problem for the Chinese authorities because they're now struggling to be able to fill that gap. We've also got the problems that are going on with regards to the new tariffs that are in place with Donald Trump. They have been reduced for this 90 day period from 145% to the current level of 30%, but that's still representing a 30% increase in the price of Chinese exports into the USA, its biggest single market. So China is facing a lot of problems at the moment in terms of achieving its GDP target growth of 5% for 2025. That looks highly questionable and what's happening in the property sector is going to make it even more difficult to be able to hit that figure. So hopefully you've enjoyed today's video, I hope you found it useful, informative, and thought provoking. If you've liked what I've said, then please give me a thumbs up. Thank you for watching this video all the way through to the end. And thank you so much to everyone that's supporting me. If you've bought me a coffee or sent me a YouTube super thanks, I really appreciate that. Thank you so much. And if you're a long-term supporter, either through Patreon or YouTube membership or buy me a coffee membership, thank you for that support really helps to keep me motivated. And here's something to put a smile on your face.