China’s housing market is locked in a three-way face-off between developers who can’t sell new homes, speculators sitting on empty properties bought for high prices, and first-time home buyers who can’t enter the market because of housing costs that outstrip earning power.
These opposing forces add to the risks of sharper downturn in housing prices, according to a study released this week by the China Household Finance Survey and Research Centre at the Southwestern University of Finance and Economics in Chongqing.
Based on a survey of 262 counties in 29 provinces across China, the study found that the amount of unoccupied homes climbed from 20.6 percent in 2011 to 22.4 percent last year, totalling an estimated 49 million empty housing units.
In addition to the 49 million sold but vacant units, the survey estimated that China has another 3.5 million unsold homes sitting in developer’s inventories.
Wealthy Families Pushing First Time Buyers Out of the Market
The study also found that first time home buyers are playing a much smaller role in the market than they were during the previous decade, while wealthy families are much more likely to own multiple homes, including units that go unoccupied.
Among purchasers of homes last year, only about 20 percent were making their first home purchase, down from 48 percent first-time buyers in 2012, and from about 90 percent first-time buyers in 2000, according to Professor Gan Li, the director of the Center.
The survey also found that among the households surveyed, 40 percent of families with incomes falling in the top 10 percent of the residents of their cities owned homes which they left unoccupied.
Buyers and Sellers in a Standoff
Despite the amount of unoccupied housing, including the vast amount still being held as unsold developer inventory, the recent freeze-up of home sales has had only a minor effect on housing prices. According to the most recent figures from real estate information provider China Index Academy average home prices dropping 0.3 percent in May this year compared to April.
While any downturn in prices may be unwelcome news for potential home sellers, the owners of the country’s 49 million empty homes still seem to be willing to wait and hope for prices to rebound. Even major cities such as Hangzhou are reporting slides of home sales volumes of as much as 37 percent, so a nationwide price drop of less than half of a percentage point seems mild in comparison.