China’s Ghost Cities Are a Problem for Europe’s Luxury Brands, Too

How closely is demand for $3,000 handbags tied to home prices in China? Quite closely, it turns out, which is unfortunate for luxury brands.

Europe’s luxury stocks fell in early trading Tuesday after China’s economic planning agency failed to announce additional measures to kickstart growth that some investors had hoped for. The sector is still up 10% on average since Beijing launched its initial stimulus plans late last month.

Beijing hopes a cut to mortgage rates, and lower down-payment requirements for buyers of second homes, will jump-start the country’s troubled housing market. A package of loans to brokers and insurers to buy Chinese shares has had initial success at lifting the stock market.

Luxury spending in China has traditionally been more correlated with its home prices than with the financial markets or overall economic growth. Around 60% of net household wealth was tied up in property before prices peaked in 2021. Barclays estimates that falling home prices have destroyed about $18 trillion in household wealth since then, which is equivalent to roughly $60,000 per family.

This, along with worries about the wider economy, is hurting consumer confidence. Retail sales rose just 2.1% in August compared with the same month last year, according to data from China’s National Bureau of Statistics. When global luxury brands start to report their third-quarter results next week, Chinese demand is expected to have slowed since they last updated investors.

Flagging sales come at an unhelpful time for Europe’s luxury companies, which rely on Chinese consumers for a third of global luxury spending. After several bumpy years during the pandemic, luxury brands and their investors hoped that a comeback in Chinese spending would compensate for a slowdown among Europeans and Americans.

This looks increasingly unlikely. Luxury sales to Chinese shoppers are expected to shrink 7% in 2024 and by 3% next year, according to UBS estimates. As luxury brands have high fixed costs, including the most expensive retail rents in the world, a slowdown with such key customers could have an outsize impact on profit margins.

The last time the luxury industry went through such a rocky patch in China, barring the pandemic, was between 2014 and 2016 when Beijing was cracking down on corruption, including officials who were gifting Louis Vuitton handbags and Rolex watches in exchange for political favours. The global luxury industry barely grew for two years during China’s anticorruption drive, which also coincided with a property-market correction in the country. It didn’t help that shoppers in other markets were also tiring of logos back then.

Europe’s luxury stocks look expensive today compared with that time. As a multiple of expected earnings, listed brands’ shares now trade at a roughly 40% premium to their 2014 to 2016 average.

To justify the higher price tag, Beijing’s housing and wider economic stimulus would need to indirectly lift luxury demand. Measures rolled out so far may not be enough to slow the slide in home prices. China’s housing market is oversupplied by around 60 million units, according to Bloomberg Economics estimates.

New incentives to kick-start consumption are expected soon but will probably target mass-market products like white goods. China already rolled out trade-in subsidies for home appliances earlier this year and a range of consumption coupons.

None of this is very helpful for sellers of expensive luxury goods. For brands to see a recovery, Chinese consumers that spend anywhere from $7,000 to $43,000 a year on luxury products would need to feel much better about their finances than they currently do. Spending by this group has fallen 17% so far this year compared with the same period of 2023, according to a report by Boston Consulting Group.

Half-finished, abandoned housing estates are a big headache for China’s government, and are also on the mind of executives in Paris and Milan. Though the fortunes of luxury bosses likely isn’t high on Chinese officials’ priority list, their fates may be intertwined.

Property has always been about more than buying and selling. A home can represent a fresh start, a long-term investment, an architectural idea or a connection to a particular neighbourhood. Even when people are not planning a move, many still enjoy following the market, researching local areas and discovering the stories behind remarkable homes.

Atlas Real Estate is responding to that wider interest by creating more ways for people to engage with property. Bringing listings, market information, local perspectives and lifestyle stories together, Atlas offers a destination for anyone curious about homes and the communities surrounding them.

It reflects the reality that people approach real estate with different needs and motivations. One visitor might be actively searching for a new home, while another may want to understand recent results in their suburb. Others might be keeping an eye on changing market conditions, exploring an unfamiliar area or simply appreciating thoughtful architecture and premium residential design.

At atlas.com.au, those interests meet in one place. Visitors can browse properties for sale and recent results, while also exploring market insights, featured homes, local stories and introductions to the people behind Atlas. The result is an experience designed to remain relevant before, during and after a traditional property transaction.

“We’re reimagining real estate around how people actually engage with property today — bringing together market insight, exceptional homes, local perspective and lifestyle in a way that feels more relevant and useful,” says Michael Coombs, Director of Atlas Real Estate.

That approach recognises that an interest in property rarely begins on the day someone decides to buy or sell. A future buyer may spend months learning about suburbs, monitoring prices and refining their sense of what they want. A homeowner might follow nearby sales to understand the changing value and character of their area. An investor may be looking for broader market context, while a design enthusiast may be drawn to an exceptional renovation or a distinctive piece of architecture.

By accommodating those different forms of curiosity, Atlas aims to make engaging with real estate feel less transactional and more connected to everyday life. Property is shaped by its surroundings: the streets, businesses, landscapes and people that give a place its identity. Understanding a home therefore means looking beyond its floor plan or sales history to consider the lifestyle and community that come with it.

This broader perspective also gives local stories a meaningful role. Suburbs are constantly evolving, influenced by new businesses, changing demographics, design trends and the people who choose to make them home. Content that explores these forces can help readers build a richer understanding of an area, whether they are preparing to move there or simply want to stay informed about their own neighbourhood.

The same is true of market information. Sales results and property data are most useful when they are accessible and supported by context. Bringing recent results together with insights and local knowledge can help people follow the market on their own terms, without suggesting that every visit must lead immediately to a transaction.

For Atlas, this thinking forms part of “Real Estate, Reimagined”, its broader brand campaign focused on using brand, creativity and technology to deliver a more relevant, useful and human real estate experience. Rather than treating technology as an end in itself, the emphasis is on how it can make property easier and more engaging to explore.

That human focus matters because real estate decisions are often closely tied to significant moments in people’s lives. A move may be connected to a growing family, a new job, a change in lifestyle or a long-held ambition. Even outside those milestones, homes and neighbourhoods remain a source of interest because they reflect how people live and how communities develop.

Atlas’s approach makes room for both the practical and aspirational sides of that interest. Readers can seek out information with a clear goal in mind or browse simply because a property, place or story captures their attention. In either case, they can move easily between homes, results, market perspectives and local inspiration.

The ambition is not to redefine why people care about property, but to reflect the many reasons they already do. By combining useful information with engaging editorial content, Atlas is creating a place for buyers, sellers, homeowners, investors and the property-curious alike.

Whatever brings you to property, discover more at atlas.com.au

China’s Ghost Cities Are a Problem for Europe’s Luxury Brands, Too

Chinese consumers watching the value of their homes fall are losing the confidence to spend on designer goods

Atlas Real Estate is reimagining how people connect with property, combining listings, market insights, local stories and lifestyle content in one destination for those buying, selling or simply exploring the market.