What makes stalled projects so damaging to China’s housing market?

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Stalled Projects Pose Significant Threats to China's Housing Market

Stalled construction projects in China's housing market are deeply damaging due to their widespread impact on property transactions, the credibility of government authorities, and the exacerbation of developers' financial distress. This crisis is unfolding against a backdrop of a broader property slump and stringent anti-Covid measures that are collectively weighing down the nation's economy.
Scale of the Unfinished Housing Crisis

The magnitude of the problem is substantial, with stalled projects encompassing a significant portion of the Chinese housing market. In the first half of 2022 alone, unfinished developments represented 3.85% of the total housing market, equating to an area of 231 million square metres. This situation directly affects thousands of home buyers who have invested their life savings, as seen in cases like Ms. Xu's in Guilin. She has been living in an unfinished apartment for six months, facing inadequate living conditions with unpainted walls, missing fixtures, and a lack of essential utilities like gas and running water.
Impact on Property Transactions and Developer Debt

The prevalence of incomplete housing creates a ripple effect that undermines the stability of property transactions and deepens developers' existing debt issues. Approximately 90% of new homes in China are purchased "off plans," meaning buyers commit to properties while they are still under construction. When construction halts, these transactions are jeopardised, leading to a loss of confidence in the market. Furthermore, the inability of developers to complete projects and deliver units directly impacts their cash flow and exacerbates their financial difficulties, potentially leading to bankruptcies and further project abandonment, as exemplified by the case of Jiadengbao Real Estate, whose parent company faced accusations of illegal fundraising.
Erosion of Government Credibility

The ongoing issue of unfinished apartments also poses a threat to the credibility of local and national governments. Buyers, like those involved in the mortgage strikes that began in late June, are turning to collective action, including threats to halt mortgage payments, to pressure authorities into resolving the crisis. When governments are perceived as unable to ensure the completion of contracted housing or provide adequate solutions for affected buyers, it can lead to public distrust and social unrest. The lack of official statements or clear resolution paths from authorities, as described by Ms. Xu, further fuels this sentiment.

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What makes stalled projects so damaging to China’s housing market?

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