China RE evolution

This is how the real estate market in China evolves after the outbreak of covid-19
Interviews Long Fang Hu, owner of investment and real estate agencies

Owner of real estate and investment agencies in China and Europe, Long Fang Hu, illustrates to idealista / news the actuality of the Chinese real estate market after the outbreak of the covid-19. Long Fang Hu explains that used house prices have fallen by 30% and that the pace of sales has fallen between 10% and 30% in January and February. However, in March there was a slight recovery in activity and the rental market remained almost stable.

How has the covid-19 crisis affected the Chinese real estate sector?

To put the situation into context, it is important to know that before the health crisis there was an excessive supply of housing in China and measures that did not allow speculation in major cities such as Shanghai, Beijing or Hangzhou. The government limited the purchase of a house per household. The arrival of the covid-19 completely affected the real estate market which was paralyzed in the months of January and February, when there was no sale either in the used market or in the new buildings. In March there was a rebound in sales, although very far from previous years.

How much has the decline in sales in China been?

Buying and selling decreased by 30% compared to previous years. China has always been a market with a long tradition of domestic purchases. But due to total confinement for two months in most Chinese cities, the buyer / consumer is now focusing his short-term priorities on the workplace and on leisure / leisure use.

What is the situation on the rental market?

As for the rental market, the situation in January and February was similar to the sales market, because China handled the confinement in a very rigorous way. As soon as the lockdown was lifted, the housing rental market was not affected too much because housing needs are always the same. Of course, the tertiary rent has decreased significantly compared to the past few years.

What were the most affected cities?

The most affected city was Wuhan since it was the epicenter of the pandemic. The rest of the cities acted very quickly by closing their borders and confining the entire population within a week of the outbreak of the health emergency. For example, in my city Wenzhou, which is located in Zhejiang province and has a population of around nine million, there were only 1,000 infected. The most serious situation from the health point of view was in Wuhan which is now also the most penalized city from an economic point of view.

What happened to the investments?

Investments in general continue, but at other prices and conditions. There has been a drop in house prices between 10% and 30% depending on the area or city. In the medium term, it will normalize when there is a recovery in market confidence. We work with all Chinese foreign investment agencies and the feedback they give us is that when the emergency for covid-19 stabilizes in Europe there will be a wave of potential buyers from Asia that will come to the Old Continent.

For us at Bafre it is an element to consider for the future. In fact, we were already offering apartments to Asian customers with virtual reality and videoconferencing sales before the alarm state was also decreed in Europe. I encourage colleagues in the sector not to fall behind because it all depends on our abilities. Furthermore, due to the fear of rising inflation, there are investors who want to safeguard their investments in the real estate sector.

What measures are being taken to revive the market?

Recovery expectations are huge in China. Basically, three measures have been adopted which, from my point of view, are important to incentivize the sector: lowering of interest rates in order to stimulate the purchase, reduction of tax burdens towards companies and deferred payment measures in the purchase or sale of state land as well as facilitating licensing procedures.

How is the residential sector in China going now? Did you regain rhythm after covid-19?

Normality can only be observed in frontline cities. In the rest of the cities the recovery is much slower, but constant.

When do you think the pre-crisis rhythm can be reached?

The government expects the recovery rate in the real estate sector to be moderate, but stable. An attempt is made to maintain a constant recovery rate with measures that stabilize supply and demand. At this time, the government prefers to encourage other sectors such as industry and consumption.

Real estate agencies have had to close because of the crisis or construction companies have gone bankrupt?

Yes, but as it happens in China and in the rest of the world. After this moment of crisis, the important thing is to know how to learn from your mistakes both professionally and personally. In times of crisis, opportunities arise. In fact, what hurts me most is not that they close companies because they will always be able to re-emerge – it is a cyclical process – but that many people die who could be saved.