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The View | China’s property sector must downsize if there aren’t enough marriages to save it
- The decline in the number of marriages, the most significant driver of property demand, leaves China looking at a massive inventory that will take at least 10 years to digest
- Without downsizing and reforms, the property industry will become a zombie
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China’s property bubble is deflating quickly. The vast industry and local governments are trying to revive it. But it won’t work. The sector is beset by developers’ financing woes and a massive supply overhang amid high household debt, a property affordability crisis and, crucially, a collapse in the rate of marriage.
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The government can ease developers’ financial pressure and cut debt costs for households. But it cannot revive the marriage rate. The property industry must downsize by at least half if it is to attain any stability at all.
The industry has enjoyed an incredible combination of huge volumes and high prices for so long partly due to the unique dynamics of China’s modern marriage market – men looking to marry were expected to own property, preferably debt-free.
The man’s parents and grandparents tended to pitch in, often exhausting their savings. The prospective bride’s family, free of financial pressure, would often push for purchase regardless of the price. Debt was sometimes used to plug the cash shortfall, borrowed under the names of the groom’s parents. Such demand has been a pillar of the property market.
But marriages plunged to a record low of 7.6 million last year, roughly half of the peak of 13.5 million in 2013. That year, 1.3 billion square metres of new residential properties – roughly 13 million flats – were sold, household debt was low at 16.6 trillion yuan (US$2.4 trillion), and grandparents were rich in savings. By last year, household debt had ballooned to 71.1 trillion yuan, over 140 per cent of disposable household income, and the grandparents had been bled dry.
In China, grooms historically bear the financial burden of the wedding and the matrimonial home. This is tied to the all-importance of the family name and the expectation that men carry it on at any cost. Chinese society has emphasised the importance of the family name for thousands of years; emperors used to bestow the imperial family name on their subjects as a reward, making it all the more precious.
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