China Home Sales Are Falling Sharply

Home sales in China are seizing up as curbs on lending and worries about developers’ financial health deter house buyers, casting a pall over an industry that is central to the Chinese economy.

In recent days, numerous big developers have reported lower sales figures for September, with many showing year-over-year declines of more than 20% or 30%. That is a stark drop-off for a month that leads up to China’s Oct. 1 National Day holiday, whose promotions usually make this one of the strongest selling periods of the year.

If sustained, the sharp downturn could have serious economic consequences. Real estate has played an outsize role in China’s economy in recent years, compared with its importance in many other countries, and Chinese families have much of their wealth tied up in homes and in investment properties. Slower sales could spill over into investment and construction, potentially hurting growth, employment and local government finances. Discounting to spur sales could hurt home prices and hit household wealth.

Developers such as China Evergrande Group are very publicly struggling to adapt to a series of changes, including rules dubbed the “three red lines” that were introduced last year to curb debt growth at financially weaker companies, as well as caps on banks’ property lending. Some have missed interest payments, and stock and bond prices have dropped sharply across the industry. The news has alarmed home buyers, especially as developers sell many apartments before they are built.

The sales slowdown was partly a result of tighter government policy on mortgages and waning confidence among home buyers, said Cheng Wee Tan, a senior equity analyst at Morningstar. Customers are worried that developers won’t be able to complete their projects, and media reports about unfinished Evergrande constructions have added to those fears, he said.

Tian Guo, who lives in the eastern city of Wenzhou, had been actively looking for an apartment. She said she was now hesitating, after news about Evergrande made her worried about developers’ finances.

She said she now wouldn’t consider buying properties that were still being built. “I’m afraid they will be left unattended before construction is finished,” said Ms. Tian, who is 25 years old. “If we really had bad luck—throwing in our lifetime savings to buy an unfinished apartment—then we would be doomed,” she added.

On Tuesday, Longfor Group Holdings Ltd. and China Resources Land Ltd. became the latest major real-estate companies to release weak data. In a filing, Longfor said September’s contracted sales totalled the equivalent of $3.1 billion. That was down nearly 33% from a year earlier. China Resources Land reported a drop of nearly 24%.

Contracted sales are a widely watched industry measure. They reflect new contracts signed with home buyers and are a more forward-looking measure than revenue, which is typically recorded when companies hand completed units over to purchasers.

Stronger players haven’t been spared, with contracted sales falling 34% at China Vanke Co., the country’s largest developer by market value. Unlike many of its peers, Vanke also enjoys investment-grade credit ratings, indicating its debt is seen as comparatively safe.

Evergrande hasn’t reported figures to Hong Kong’s exchange yet but warned on Sept. 14 that “ongoing negative media reports” had deterred home buyers, which would likely mean significantly lower sales in September. The other developers didn’t give explanations for their reduced sales.

The official corporate figures broadly tally with earlier data from CRIC, a Chinese data provider, which previously said total contracted sales among China’s 100 largest developers fell 36% year-over-year in September.

Huang Jun, a 25-year-old real-estate agent in Foshan, a city in the southern province of Guangdong, said he’s seen prices for new homes downtown drop about 20% from a recent peak in March, to the equivalent of about $346 a square foot on average.

“Virtually all developers have offered discounts over the past two months,” said Mr. Huang, who’s worked as a local property agent for four years. “Just like Evergrande, they must be under pressure to sell more flats” to repay borrowings, he said.

He said the discounts had attracted prospective buyers during the recent weeklong national holiday, but few sealed the deal. “Most of them want to wait and see if the prices would go down further,” he said, “In China, most people prefer to buy apartments when prices are rising, not falling.”

Falling sales could create stress at more developers, potentially preventing some from completing existing projects or forcing them to scale back future plans, said Logan Wright, director of China market research at Rhodium Group.

“If that continues, then the broader concern is whether some of the tightening measures come at the expense of the health of the entire sector,” Mr. Wright said. “You are going to see weaker financial conditions and weaker construction activities spilling out into the broader economy.”

Fitch Ratings last month cut its forecasts for Chinese economic expansion this year and next, saying slower housing activity would “take a toll on domestic demand.” It cut its forecast for GDP growth this year to 8.1% from 8.4%, and its forecast for next year to 5.2% from 5.5%.

From building sites to showrooms, the industry is an important source of both blue and white collar jobs in China. About 18% of China’s 285 million migrant workers earned income from construction-related jobs in 2020, according to China’s National Bureau of Statistics, while many college graduates work as real-estate agents. Local governments, meanwhile, rely on land sales to developers for about a third of their income.

All in, China’s residential real-estate market, including construction activity and services, accounted for about 23% of gross domestic product in 2018, according to Goldman Sachs.

The bank’s economists have estimated that a 15% drop in land sales and a 5% decline in property sales and home prices would knock 1.4% off China’s GDP next year. In a worst-case scenario, they said a 30% decline in land sales and a 10% drop in property sales from this year to next could depress GDP by as much as 4.1%, with the biggest impact coming from tighter financial conditions.

For now, the drops in contracted sales reflect shrinking sales volumes more than declining prices, suggesting that while transactions are drying up, prices haven’t yet been as badly affected.

At Sunac China Holdings Ltd., for example, the average selling price fell just 1.4% to the equivalent of slightly under $200 a square foot. But its contracted sales area shrank 31% to about 832 acres.

Still, there are signs that Chinese consumers think prices could fall. In the third quarter, the share of urban bank depositors in China expecting rising housing prices declined to 19.9%, according to a survey released by China’s central bank. That proportion is down from 25.1% a year ago and at its lowest since the first quarter of 2016.

Lower sales could also prompt more developers—desperate to recoup cash to repay debt obligations—to offer bigger discounts, which could put downward pressure on housing prices.

During the past month, officials from at least eight cities barred developers from making cuts to home prices that are deemed too sharp and in some cases instituted minimum prices, according to Chinese state media.

TOKYO—Last year, China native Tomo Hayashi, the owner of a metals-trading firm, moved to Tokyo. He quickly adopted a Japanese name, spent the equivalent of about $650,000 on a luxury waterfront condo and, in March, brought his family to join him.

The 45-year-old, whose two boys just started in a Japanese elementary school, is one of the many wealthy Chinese driving a boom in high-end Tokyo properties and reshaping the city.

Frustrations with Beijing’s autocratic political system, which flared during abrupt pandemic-era lockdowns and have only grown since then, have helped drive the wave, according to real-estate agents and others watching the exodus. China’s economic slowdown and its struggling stock market are also motivating wealthy people to leave the country, they say.

Hayashi, who like many Chinese buyers avoids discussing politics back home, said the move to Tokyo was a challenge. “But we like Japan—food, culture, education and safety,” he said.

Japan isn’t the only haven for Chinese people seeking a Plan B. The U.S., Canada and Singapore are among the countries drawing Chinese migrants, while Hong Kong residents often head to the U.K.

But Japanese cities that are just a few hours’ flight from China are a leading choice for better-off Chinese people. Japan’s real-estate prices are low for foreigners thanks to the weak yen and it is fairly easy for them to purchase property. And the Japanese writing system uses Chinese characters in part, so new arrivals can more easily find their way around.

A report last June by Henley & Partners that tracks worldwide migration trends estimated that a net total of 13,500 high-net-worth Chinese people would migrate overseas during the year, making China the biggest worldwide loser in that category.

Japan had about 822,000 Chinese residents as of the end of last year, up 60,000 from the previous year in the biggest jump in recent years.

Tokyo real-estate broker Osamu Orihara, a naturalised Japanese citizen who was born in China, said his revenue has tripled or quadrupled compared with 2019 before the pandemic, driven in large part by Chinese buyers.

“What is different from the past is there are more who want to get a long-term visa,” Orihara said.

About one-third of the condos on the floor of the 48-story building where Hayashi lives are owned by individuals with Chinese names or companies whose representatives have Chinese names, according to real-estate records. People in the neighbourhood next to Tokyo Bay, a forest of high-rise condominiums, say the typical building has a quarter or more Chinese residents.

Hayashi said a Chinese friend recommended the building. He described the price for the 650-square-foot, two-bedroom unit as reasonable compared with Hong Kong, where he briefly lived after leaving his hometown of Shenzhen, China, and he said the value has already gone up by some 10% to 15%.

The average price for new apartments in central Tokyo was up nearly 40% last year to the equivalent of about $740,000, according to industry figures. The rise was influenced by a flood of new properties appealing to affluent Chinese buyers who are concerned about a steep slump in their own market, market watchers say.

Brokers said Chinese buyers were also eager to buy resort properties. On the northern island of Hokkaido, a town named Furano that is near ski slopes saw residential land prices rise 28% last year, the fastest rate nationwide. Hideyuki Ishii, a local broker, said wealthy Chinese from the mainland, Hong Kong and Singapore were looking for vacation homes.

“A red tsunami is coming with the Chinese flag in tow,” he said.

Chinese people who want to move to Japan and buy an apartment or house generally face two challenges: getting their money into Japan and getting a visa.

China restricts how much its residents can take out of the country, but many Chinese buyers own companies with international operations or have overseas investments. Orihara, the broker, said his clients usually have a bank account in Hong Kong or Singapore from which they can wire money.

One exception, he said, was a client who bought a $190,000 property and mobilised friends and relatives to carry cash little by little over a few months.

As for the visa, people who invest the equivalent of at least $32,000 in a Japanese business that has a permanent office and two or more employees can get a business-management visa.

Other Chinese obtain a visa for what Japan describes as high-level specialists in business, technology or academia. The number of Chinese with the technology version—software engineers and the like—rose 30% between 2019 and 2023 to more than 10,000. Holders can apply for permanent residency in Japan in as little as one year under a point system that favours those with high salaries and advanced degrees.

Tokyo visa consultant Wang Yun, who is originally from China, said most of his clients were Chinese, often business owners or corporate executives in their late 30s to 50s from big cities such as Shanghai or Beijing.

Once settled, many Chinese opt to use a Japanese name, including on legal records in Japan. Some turn to Japanese readings of their name’s Chinese characters, while others pick an entirely new name.

In addition to convenience when dealing with Japanese people, using a Japanese name allows people of Chinese origin to keep a lower profile back home, where they typically still have family. That may be helpful because Chinese authorities tend to frown on the trend of people moving out with their assets.

Popular Chinese social-media platforms such as Weibo , Little Red Book and WeChat buzz with talk of purchasing real estate in Japan. There is some censorship: Citing government regulations, Weibo blocks searches using a hashtag that translates as “Chinese investors are flooding into Tokyo to buy houses,” though users can search for that subject without the hashtag symbol.

Satoyoshi Mizugami, another broker in Tokyo with roots in China, said he hoped to triple his staff to 300 people in five years to handle all the new business from Chinese buyers. A new office building is under construction to accommodate them, he said.

One of Mizugami’s clients is a 42-year-old Chinese man who was educated in the U.K. and started a restaurant business in China and the U.S. He had been living in China since the pandemic and, when he decided to leave, chose Japan because he thought the business environment was better than that of the U.S. Last year, he bought an apartment in central Tokyo, using the money from selling his U.S. business.

This buyer said he was opening a food-trading business in Japan and applying for a visa to move to Japan with his Chinese-American wife and their 4-year-old son.

On a recent morning in Tokyo, Hayashi, the buyer of the waterfront condominium, was busy helping his boys, 9 and 7, learn Japanese and English online and watching them play outside. His wife had briefly returned to China to see their 15-year-old daughter, who is staying to finish high school there.

Hayashi said he intended to stick with Japan for the long haul. He said one attraction was the high level of medical care, which he expects would be valuable when he gets older. He was careful to note that he has been paying Japanese taxes since last year. As a holder of a high-level specialist visa, he said “I’d like to get permanent residency in four or five years.”

China Home Sales Are Falling Sharply

Decline in September, typically a strong month, raises concerns about economic growth.

Frustrations with China’s autocratic political system and economic slowdown provoke the flight, helping Tokyo’s luxury property market