Victor Davis Hanson: The Media ‘Jumps the Shark’

Have Shanghai housing prices really dropped that much? Even in the city center, they've fallen, right? Many people don't believe it. Did you know? Many still don't believe that the housing prices in Shenzhen, Shanghai, and Beijing have already dropped. In certain areas of Shenzhen, some properties have seen their prices cut by 50%. A lot of people find this hard to believe because they were once considered core assets. And now, in some areas of Shanghai, prices have dropped by a third. People still don't believe it. So friends, you need to listen to these homeowners selling their properties. Hear the truth they have to share. Speaking of homeowners selling their properties, recently in a high-end neighborhood in Shanghai's Jing'an District, a property was listed at a fire sale price. The homeowner, Ms. Shi, bought this 180-square-meter flat for 25 million yuan in 2019. Now, six years later, she's dropped the price to 20 million yuan, willing to take a 5 million yuan loss just to sell. Even with this drastic price cut, after a month on the market, only three potential buyers have viewed the property, with the highest offer being only 18.5 million yuan. This has caused Ms. Shi to feel anxious. She calls real estate agents every day, urging them to bring people to see the property. However, the agents have expressed a sense of helplessness, stating that her loss is significant and she might be one of the most unfortunate landlords this year. They also mentioned that while 20 million yuan is still considered high in today's market, if she truly wants to sell, she will likely need to keep lowering the price. At this point, some may wonder why Ms. Shi bought this property in the first place. The truth is, in 2019, the Shanghai real estate market was booming. New developments in areas sold out immediately and people were fighting to get in. There were also many so-called experts saying prices in core locations will only rise and never fall. As a result, Ms. Shi impulsively withdrew all her savings and even borrowed 8 million yuan in a business loan from the bank to buy the property. However, after the pandemic restrictions eased, her business started to decline. Each month, she had to pay 80,000 yuan just for the mortgage. After struggling for two years, she couldn't hold on any longer and had no choice but to lower the price and sell the property. In fact, situations like Ms. Shi, where homeowners are selling at a loss are becoming increasingly common in Shanghai. A Shanghai real estate agent named Ms. Man mentioned that she encountered a landlord who suffered the biggest loss of the year, losing 2.25 million yuan on a single property. Today, I met what I believe is the most unfortunate landlord in Shanghai. She just sold her property and after signing the contract, I almost couldn't bring myself to collect the commission. But this landlord, with a smile, said she finally felt relieved and could sleep peacefully. Can you believe it? A property worth over 7 million yuan lost 2.25 million yuan in less than three years. This was a 56 square meter flat on Meiyuan 2nd Street. Although it's an old public housing unit, those familiar with Shanghai would know that it's close to Lujiazui and it's a double school district, so the prices have always been high. This lady bought the property in the second half of 2022 right after Shanghai lifted its pandemic restrictions. When she recalled the situation at that time, she said there were three buyers competing for this unit because the price per square meter in the neighborhood had dropped from 210,000 yuan to 130,000 yuan. So everyone thought it was a great deal. She said she had to pay an extra 50,000 yuan compared to the others just to secure the property. However, just two to three years later, the national real estate market entered a downturn and prices continued to hit new lows. She said the pressure over the past two years has been immense and hearing her story is heart-wrenching. She's been in the real estate industry for 22 years and over the past 20 years, she's personally witnessed and even helped create countless wealth stories, seeing many clients go from buying their first homes on bicycles to driving luxury cars to purchase villas. However, in the past two years, she has seen many family tragedies caused by buying property. She sincerely advises everyone that in the current environment, making money is getting more and more difficult. We must hold tightly to our pockets and remember that housing is for living, not for speculation. If you really need a home, buying property now requires great caution. The margin for error in this market is very low and in the future, only about 20% of properties may have both residential and investment value. The rest will only be for living with little chance of resale in the market. So you can choose not to buy a property, but you absolutely cannot afford to make the wrong purchase. Due to the previously high housing prices, the group of people in Shanghai who can't afford to pay their high mortgages has already started to emerge. This person explained, Let me share with you a very alarming phenomenon. Many people around us are already unable to pay their mortgages. Even after selling their properties, they still can't cover the remaining debt and have to pay out hundreds of thousands. If this continues, we'll definitely see a lot of problems. Now, many clients are seeing their salaries cut, some are facing layoffs, business isn't going well, and the economic environment is bad. I've been selling properties in Minghan District, Fujian Town, and recently a lot of landlords have come to list their homes. Many of them are insolvent. Why? In these circumstances, why are they still selling? They told me that they entered the market a few years ago when prices were high and they used a lot of leverage putting down 20 to 30% of the down payment while the loan interest rates were also high. They thought that if the housing prices went up, they could make a small profit. But now not only are prices still falling, but they might even lose their principal and end up with a loss of hundreds of thousands or even a million yuan. If they sell, they'll definitely lose. If they don't sell, they still can't pay the mortgage. It's a vicious cycle. Another person mentioned that in Pudong, a homeowner bought a property for 9.5 million yuan in 2021. Similar to Ms. Shi's situation, he now can't handle the pressure of his mortgage and wants to sell for 8.2 million yuan. However, after a few groups of potential buyers came, the highest offer was only 7.5 million yuan. The problem is this is a buyer's market now. No matter how much a landlord feels for the situation, buyers won't be swayed by sympathy. As one person summarized, the Shanghai real estate market is no longer like it was a few years ago. Those were the days when if you had money, you could buy anything and make a profit. The boom is over. The bubble has burst and properties are slowly returning to their true value. And judging by the current situation, properties in Shanghai are becoming harder and harder to sell. According to a data from Chinese real estate brokerage company, Lianjia, the number of properties listed in the second-hand housing market in Shanghai surged in 2024 with a total surpassing 180,000 units, a year-on-year increase of approximately 40%. At the same time, the average transaction period has lengthened from 89 days in 2023 to 142 days this year, indicating a significant decline in market activity. By this year, just four months in, it's reported that the total listing on all platforms have already surpassed 300,000 units by May. Additionally, according to the latest data released by the China Index Academy on May 1 this year, the Chinese real estate market continues to face pressure. The average price of new residential properties across 100 cities in April was 16,800 yuan per square meter, a slight month-to-month increase of 0.14% and a year-on-year increase of 2.5%. However, the second-hand housing market has been in a full downturn with the average price being 13,900 yuan per square meter, a month-on-month decrease of 0.7% and a significant year-on-year drop of 7%. It's worth noting that in all 100 cities, no second-hand property prices increased and all showed month-on-month declines. Among these, Hua'an saw the largest drop at 2%, 48 cities had a decline of 0.5% to 1%, 17 cities saw a decrease of 0.3% to 0.5% and the remaining cities had a drop of less than 0.3%. Second-tier cities have become the hardest hit by the price adjustment. In April, the month-on-month drop in second-hand home prices in these cities was 0.8%, significantly higher than the 0.4% in first-tier cities. In cities like Fuzhou, Changzhou and Yangcheng, all price for volume strategy has become the mainstream with many homeowners actively lowering prices by 10% to 15% to sell quickly, further intensifying the selling frenzy. Even the first-tier cities are struggling with second-hand housing prices in Beijing dropping by 0.5%, in Shanghai by 0.3%, in Guangzhou by 0.5% and in Shenzhen by 0.2%. Even Shenzhen, which is regarded as the bellwether of the housing market, is no longer holding up. In summary, the real estate market in mainland China is still in a downturn cycle with no substantial rebound in sight and it may continue to decline. To this end, a person listed the five cities with the most significant property price declines nationwide for reference. Fifth place is Yongqing in Hebei province. When purchased, the price was 23,000 yuan per square meter but now it's only 3,500 yuan per square meter. Fourth place is Yanjiao in Beijing. At its peak, the price was 4,200 yuan per square meter but now I've heard it's down to 6,000 yuan per square meter. Third place is Peacock Town in Badaling. Previously, it has 18,000 yuan per square meter but now you can get it for 3,000 yuan per square meter. Because it's so cheap, many people buy the property to place urns as it's cheaper than cemetery plots. The second place is Treiping Community in Nanjing. At its peak, it was 19,000 yuan per square meter and during the peak period, people had to enter a lottery to secure property. Now the price has dropped to just 6,400 yuan per square meter. First place is undoubtedly Huizhou in Guangdong where the property prices have shrunk by 90%. Before the pandemic, the price was 14,000 yuan per square meter but now even if you offer 1,600 yuan per square meter, no one wants it. And the reason behind this is simple. First of all, the decline of housing prices is undoubtedly the most important. In the past, people bought properties mainly because they were attracted by the profit made from continuously rising property prices. However, since 2023, housing prices in Shanghai have clearly dropped. It started with a decline in prices of properties in remote suburban areas then spread to old and dilapidated buildings in the city center. Now prices of 5 to 15-year-old newer properties in the city center are also beginning to soften. Clearly, housing prices in Shanghai have now lost their profit-making effect. As a result, many investors have either chosen to sell off their properties to cash out or are waiting on the sidelines with cash in hand. Once the demand for investment property shrinks, it makes people feel that homes are becoming harder and harder to sell. Another blogger provided his analysis where he believes that aside from investment, the risk of price declines has also suppressed people's desire to buy properties. He said, Why hasn't anyone bought yet despite the sharp drop in prices? Because everyone knows that housing prices will continue to fall. Buying now would be like throwing money away. It's like buying cabbage that costs 1 yuan for 10 yuan. No one wants to be the one stuck buying at a high price. Secondly, there is a price inversion between new homes and second-hand homes. The phenomenon of price inversions between new and second-hand properties is severe. In 2024, the areas in Shanghai where the prices of new and second-hand homes are inverted increased from 15 to 27 with outer ring areas becoming the hardest hit. For example, a new development in Qingpu, Shanghai is priced at 52,000 yuan per square metre while second-hand homes of the same quality next door are listed at 58,000 yuan per square metre. As a buyer, you would definitely choose to buy the newly built property. Of course, there is one homeowner who didn't believe this trend and insisted on listing his property in Shenzhen for 55,000 yuan per square metre but the new development next door In the end, this homeowner had no choice but to lower the price to 46,000 yuan per square metre before finding a buyer. Third, the most fundamental reason economic downturn, declining incomes and the inability to support high property prices. In recent years, the slowdown in China's economic growth has resulted in a chain reaction that resulted in the continuous decline of the real estate market. First, the economic downturn has led to slower growth in residents' income and increased employment pressure, directly weakening the ability to purchase homes and the willingness to consume. Especially against the layoffs in the manufacturing, internet and real estate sector, the purchasing intention of the middle class has clearly contracted. Basic needs have become more cautious and improvement needs to have been largely delayed or shelved. With current family incomes, it is impossible to support the current high property prices which can easily reach hundreds of thousands or even millions of yuan. So the reason homes in Shanghai are becoming harder to sell is because housing prices have drifted far beyond what ordinary people's income can support. Additionally, external factors such as the China-US trade war have exaggerated market uncertainty. Export-oriented industries have been hit, leading to insufficient business confidence and more conservative investments. Meanwhile, fluctuations in the RMB exchange rate and global supply chain restructuring have increased capital outflow pressure, further weakening the traditional safe haven appeal of real estate. With foreign capital flowing out and domestic investors sitting on the sidelines, market liquidity has diminished, putting pressure on housing prices. In fact, it's not just ordinary people who are lowering prices and selling their properties. Many capitalists are also lowering prices and fleeing the housing market. Hong Kong billionaire Li Ka-shing, who was criticized by the Chinese Communist Party for his Panama Canal port asset, has recently been reported to have drastically reduced prices of his residential project. Regency Park was originally developed by his company, Chun Kong Real Estate in Beijing. Now some units are being sold at a 30% discount, drawing widespread attention. It has been reported that the lightest high-rise unit for sale at the Regency Park have seen their average price drop to 70,000 yuan per square meter, with the lowest total price starting at 9.8 million yuan and nearly 1 million yuan decrease from the 2023 launch price. Villa has also seen significant price cuts, with the smallest unit of 345 square meters having its total price reduced from 32 million or 33 million yuan to a price of 29 million yuan. To appease previous homeowners who purchased at high prices, developers introduced two compensation plans. One is to provide fixed-price renovation reimbursements and the offer is to offer cash subsidies ranging from 800,000 to 1 million yuan per household. This is not the first time that Regency Park has reduced its prices. At the end of October 2024, the project offered 50 discounted units at a 24% discount with an average price of 76,000 yuan per square meter, lower than the price of second-hand homes in the surrounding area. The Regency Park project originated in 2001 when Li Ka-shing's Hutchison's Wempoa company acquired the site for 700 million yuan. With a floor price of just 1,750 yuan per square meter, the first phase of Regency Park was launched in 2005 with an average price of 9,000 yuan per square meter. And by the second phase in 2011, the average price had risen to 29,000 yuan per square meter. In 2022, it was planned to launch with prices between 100,000 to 110,000 yuan per square meter, but the actual registration price in 2023 was 90,700 to 99,700 yuan per square meter. The current average price of 70,000 yuan per square meter is still 40 times the land acquisition price. In fact, Li has already started adjusting his real estate portfolio in mainland China and Hong Kong. In Hong Kong, his CK Asset Holdings has repeatedly launched low-price promotions such as the 2023 project in the North District of Hong Kong, which sparked a buying frenzy due to its pre-sale prices being much lower than the surrounding prices. In 2024, Li also drastically reduced prices and cleared inventory in Dongguan City, with discounts of up to 20%, quickly selling off existing properties. The 30% discount sale of the Regency Park in Beijing has brought its discount level in line with other cities, signaling further adjustments to his real estate strategy in mainland China. The interpretation is that he has chosen the price-for-volume strategy in the face of the systemic downturn in mainland China's housing market, aiming to accelerate asset liquidation and capital recovery. As a result, many people believe that Li is systematically withdrawing from Chinese real estate and attempting to avoid the potential risk of intensified regulation, asset shrinkage, and market liquidity issues in the future. Chinese people also commonly comment that Li's recent move shows his pessimism about the future of the real estate market under the CCP's control in mainland China and Hong Kong, and he is even seen as a bellwether. An increasing number of real estate agents in mainland China also openly admit that they are not optimistic about the future of China's real estate market, with many believing the market will continue to weaken. This vlogger who works as a property agent in Shanghai posted a video saying, Do you believe it? Next year, the second-hand housing market will face an unprecedented selling frenzy, and this is an inevitable result. I work in property collection in Shanghai, and what seems like a recovery in transaction data is actually just a false illusion created by lowering prices to increase sales volume. Listing prices have been slashed again and again, even being halved in fire sales, just to barely achieve a few scattered transactions. Next year, not only will homes be hard to sell, but even renting will be difficult. With the continued accumulation of unsold properties, most homeowners will find themselves trapped in a double bind of being unable to sell or rent out their homes in the next two years. Whether you're a homeowner waiting on the sidelines or a buyer waiting to buy at a bottom, you must realize that the era of easy profits from real estate is over. What's more important now than price is recognizing the trend. Experts predict that in the next three years, housing prices could drop by another 30% to 60%. For example, a house worth 1 million yuan could fall to 500,000 or 600,000 yuan, or even 400,000 to 500,000 yuan. So why are experts advising property owners with multiple homes to sell? This is due to the visible supply demand imbalance. Birth rates are declining, the population is aging, housing inventory is increasing while demand continues to shrink. If you own multiple properties rather than waiting and watching as a housing market continues to decline, it's better to adjust your strategy in a timely manner.