China is tearing down tower blocks and pausing construction on buildings that could house 75m people as Xi Jinping’s government seeks to prop up the country’s stalling property market.
Analysts have warned Beijing has adopted a “build, pause, demolish, repeat” strategy as Chinese officials seek to restrict supply to avoid a plunge in house prices and boost economic activity through more construction.
Researchers at Fathom Consulting revealed that around 3bn square metres of housing has been put on pause or demolished in recent years, stopping properties reaching the market. It is enough to house 75m people, more than the entire population of the UK.
Indebted Chinese developers have been plunged into crisis as the struggling property market weighs heavily on the world’s second-largest economy. China has vast unoccupied “ghost cities” after huge amounts of debt-fuelled development while demolitions have increased as builders run out of money.
Joanna Davies, head of China economics at Fathom, said that houses on average take a “staggering” eight years to be completed as supply is “drip fed into the system”.
She said: “A key policy tool to manipulate supply is to order the mothballing of properties during the construction phase of a project.
“These practices enable the amount of new housing under construction to keep rising – which helps to prop up short-term economic growth and keep a lid on social unrest – without flooding the market and driving down property prices.”
Confidence in China’s property market has crumbled after a crisis at some of its indebted developers. Property giant Evergrande defaulted on its debt after borrowing aggressively with many Chinese homebuyers were left exposed by snapping up property before work even began.
Ms Davies told the Telegraph: “With the cumulative stock of spare capacity at a staggering ten billion square metres, it appears China has resorted to demolitions to reduce some of this excess.
“China’s residential housing starts have long exceeded completions, resulting in a growing stock of housing ‘under construction’.
“The amount of floor space reported as being ‘under construction’ in 2021 sits well below what floor space ‘started’ minus ‘completed’ suggests that amount should be.”
She said the “only explanations for that gap” are construction being paused on properties and demolitions.
Beijing moved to cut mortgage costs on Monday as it boosts efforts to prop up the property market.
Its central bank reduced the five-year loan prime rate – which impacts mortgage costs – by 0.15 percentage points to 4.3pc, equalling the record cut made in May. China has also announced special loans for developers worth 200bn Chinese yuan (£25bn) to help them complete unfinished homes that have already been sold.
Estimates by S&P suggest that property sales in China will slump by a third this year, a drop worse than during the financial crisis. The property market accounts for around a quarter of Chinese GDP as its economy is also hamstrung by Mr Xi’s draconian zero Covid stance causing stop-start restrictions.
Sheana Yue, China economist at Capital Economics, said China’s economic outlook has darkened in recent months as the property market struggles.
She said: “The deteriorating virus situation adds to disruption risks and will continue to be a drag on consumer confidence. Problems in the housing market appear far from being resolved. And although policy support has been stepped up, we doubt this will provide much boost to the economy.”