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.

PARIS —Paris has long been a byword for luxurious living. The traditional components of the upscale home, from parquet floors to elaborate moldings, have their origins here. Yet settling down in just the right address in this low-rise, high-density city may be the greatest luxury of all.

Tradition reigns supreme in Paris real estate, where certain conditions seem set in stone—the western half of the city, on either side of the Seine, has long been more expensive than the east. But in the fashion world’s capital, parts of the housing market are also subject to shifting fads. In the trendy, hilly northeast, a roving cool factor can send prices in this year’s hip neighborhood rising, while last year’s might seem like a sudden bargain.

This week, with the opening of the Olympic Games and the eyes of the world turned toward Paris, The Wall Street Journal looks at the most expensive and desirable areas in the City of Light.

The Most Expensive Arrondissement: the 6th

Known for historic architecture, elegant apartment houses and bohemian street cred, the 6th Arrondissement is Paris’s answer to Manhattan’s West Village. Like its New York counterpart, the 6th’s starving-artist days are long behind it. But the charm that first wooed notable residents like Gertrude Stein and Jean-Paul Sartre is still largely intact, attracting high-minded tourists and deep-pocketed homeowners who can afford its once-edgy, now serene atmosphere.

Le Breton George V Notaires, a Paris notary with an international clientele, says the 6th consistently holds the title of most expensive arrondissement among Paris’s 20 administrative districts, and 2023 was no exception. Last year, average home prices reached $1,428 a square foot—almost 30% higher than the Paris average of $1,100 a square foot.

According to Meilleurs Agents, the Paris real estate appraisal company, the 6th is also home to three of the city’s five most expensive streets. Rue de Furstemberg, a secluded loop between Boulevard Saint-Germain and the Seine, comes in on top, with average prices of $2,454 a square foot as of March 2024.

For more than two decades, Kyle Branum, a 51-year-old attorney, and Kimberly Branum, a 60-year-old retired CEO, have been regular visitors to Paris, opting for apartment rentals and ultimately an ownership interest in an apartment in the city’s 7th Arrondissement, a sedate Left Bank district known for its discreet atmosphere and plutocratic residents.

“The 7th was the only place we stayed,” says Kimberly, “but we spent most of our time in the 6th.”

In 2022, inspired by the strength of the dollar, the Branums decided to fulfil a longstanding dream of buying in Paris. Working with Paris Property Group, they opted for a 1,465-square-foot, three-bedroom in a building dating to the 17th century on a side street in the 6th Arrondissement. They paid $2.7 million for the unit and then spent just over $1 million on the renovation, working with Franco-American visual artist Monte Laster, who also does interiors.

The couple, who live in Santa Barbara, Calif., plan to spend about three months a year in Paris, hosting children and grandchildren, and cooking after forays to local food markets. Their new kitchen, which includes a French stove from luxury appliance brand Lacanche, is Kimberly’s favourite room, she says.

Another American, investor Ashley Maddox, 49, is also considering relocating.

In 2012, the longtime Paris resident bought a dingy, overstuffed 1,765-square-foot apartment in the 6th and started from scratch. She paid $2.5 million and undertook a gut renovation and building improvements for about $800,000. A centrepiece of the home now is the one-time salon, which was turned into an open-plan kitchen and dining area where Maddox and her three children tend to hang out, American-style. Just outside her door are some of the city’s best-known bakeries and cheesemongers, and she is a short walk from the Jardin du Luxembourg, the Left Bank’s premier green space.

“A lot of the majesty of the city is accessible from here,” she says. “It’s so central, it’s bananas.” Now that two of her children are going away to school, she has listed the four-bedroom apartment with Varenne for $5 million.

The Most Expensive Neighbourhoods: Notre-Dame and Invalides

Garrow Kedigian is moving up in the world of Parisian real estate by heading south of the Seine.

During the pandemic, the Canada-born, New York-based interior designer reassessed his life, he says, and decided “I’m not going to wait any longer to have a pied-à-terre in Paris.”

He originally selected a 1,130-square-foot one-bedroom in the trendy 9th Arrondissement, an up-and-coming Right Bank district just below Montmartre. But he soon realised it was too small for his extended stays, not to mention hosting guests from out of town.

After paying about $1.6 million in 2022 and then investing about $55,000 in new decor, he put the unit up for sale in early 2024 and went house-shopping a second time. He ended up in the Invalides quarter of the 7th Arrondissement in the shadow of one Paris’s signature monuments, the golden-domed Hôtel des Invalides, which dates to the 17th century and is fronted by a grand esplanade.

His new neighbourhood vies for Paris’s most expensive with the Notre-Dame quarter in the 4th Arrondissement, centred on a few islands in the Seine behind its namesake cathedral. According to Le Breton, home prices in the Notre-Dame neighbourhood were $1,818 a square foot in 2023, followed by $1,568 a square foot in Invalides.

After breaking even on his Right Bank one-bedroom, Kedigian paid $2.4 million for his new 1,450-square-foot two-bedroom in a late 19th-century building. It has southern exposures, rounded living-room windows and “gorgeous floors,” he says. Kedigian, who bought the new flat through Junot Fine Properties/Knight Frank, plans to spend up to $435,000 on a renovation that will involve restoring the original 12-foot ceiling height in many of the rooms, as well as rescuing the ceilings’ elaborate stucco detailing. He expects to finish in 2025.

Over in the Notre-Dame neighbourhood, Belles demeures de France/Christie’s recently sold a 2,370-square-foot, four-bedroom home for close to the asking price of about $8.6 million, or about $3,630 a square foot. Listing agent Marie-Hélène Lundgreen says this places the unit near the very top of Paris luxury real estate, where prime homes typically sell between $2,530 and $4,040 a square foot.

The Most Expensive Suburb: Neuilly-sur-Seine

The Boulevard Périphérique, the 22-mile ring road that surrounds Paris and its 20 arrondissements, was once a line in the sand for Parisians, who regarded the French capital’s numerous suburbs as something to drive through on their way to and from vacation. The past few decades have seen waves of gentrification beyond the city’s borders, upgrading humble or industrial districts to the north and east into prime residential areas. And it has turned Neuilly-sur-Seine, just northwest of the city, into a luxury compound of first resort.

In 2023, Neuilly’s average home price of $1,092 a square foot made the leafy, stately community Paris’s most expensive suburb.

Longtime residents, Alain and Michèle Bigio, decided this year is the right time to list their 7,730-square-foot, four-bedroom townhouse on a gated Neuilly street.

The couple, now in their mid 70s, completed the home in 1990, two years after they purchased a small parcel of garden from the owners next door for an undisclosed amount. Having relocated from a white-marble château outside Paris, the couple echoed their previous home by using white- and cream-coloured stone in the new four-story build. The Bigios, who will relocate just back over the border in the 16th Arrondissement, have listed the property with Emile Garcin Propriétés for $14.7 million.

The couple raised two adult children here and undertook upgrades in their empty-nester years—most recently, an indoor pool in the basement and a new elevator.

The cool, pale interiors give way to dark and sardonic images in the former staff’s quarters in the basement where Alain works on his hobby—surreal and satirical paintings, whose risqué content means that his wife prefers they stay downstairs. “I’m not a painter,” he says. “But I paint.”

The Trendiest Arrondissement: the 9th

French interior designer Julie Hamon is theatre royalty. Her grandfather was playwright Jean Anouilh, a giant of 20th-century French literature, and her sister is actress Gwendoline Hamon. The 52-year-old, who divides her time between Paris and the U.K., still remembers when the city’s 9th Arrondissement, where she and her husband bought their 1,885-square-foot duplex in 2017, was a place to have fun rather than put down roots. Now, the 9th is the place to do both.

The 9th, a largely 19th-century district, is Paris at its most urban. But what it lacks in parks and other green spaces, it makes up with nightlife and a bustling street life. Among Paris’s gentrifying districts, which have been transformed since 2000 from near-slums to the brink of luxury, the 9th has emerged as the clear winner. According to Le Breton, average 2023 home prices here were $1,062 a square foot, while its nearest competitors for the cool crown, the 10th and the 11th, have yet to break $1,011 a square foot.

A co-principal in the Bobo Design Studio, Hamon—whose gut renovation includes a dramatic skylight, a home cinema and air conditioning—still seems surprised at how far her arrondissement has come. “The 9th used to be well known for all the theatres, nightclubs and strip clubs,” she says. “But it was never a place where you wanted to live—now it’s the place to be.”

With their youngest child about to go to college, she and her husband, 52-year-old entrepreneur Guillaume Clignet, decided to list their Paris home for $3.45 million and live in London full-time. Propriétés Parisiennes/Sotheby’s is handling the listing, which has just gone into contract after about six months on the market.

The 9th’s music venues were a draw for 44-year-old American musician and piano dealer, Ronen Segev, who divides his time between Miami and a 1,725-square-foot, two-bedroom in the lower reaches of the arrondissement. Aided by Paris Property Group, Segev purchased the apartment at auction during the pandemic, sight unseen, for $1.69 million. He spent $270,000 on a renovation, knocking down a wall to make a larger salon suitable for home concerts.

During the Olympics, Segev is renting out the space for about $22,850 a week to attendees of the Games. Otherwise, he prefers longer-term sublets to visiting musicians for $32,700 a month.

Most Exclusive Address: Avenue Junot

Hidden in the hilly expanses of the 18th Arrondissement lies a legendary street that, for those in the know, is the city’s most exclusive address. Avenue Junot, a bucolic tree-lined lane, is a fairy-tale version of the city, separate from the gritty bustle that surrounds it.

Homes here rarely come up for sale, and, when they do, they tend to be off-market, or sold before they can be listed. Martine Kuperfis—whose Paris-based Junot Group real-estate company is named for the street—says the most expensive units here are penthouses with views over the whole of the city.

In 2021, her agency sold a 3,230-square-foot triplex apartment, with a 1,400-square-foot terrace, for $8.5 million. At about $2,630 a square foot, that is three times the current average price in the whole of the 18th.

Among its current Junot listings is a 1930s 1,220-square-foot townhouse on the avenue’s cobblestone extension, with an asking price of $2.8 million.