Falling rents in China expose its crippled real estate sector and a deeper economic flaw

China’s urban rental market is facing a major slump exposing weaknesses in the country’s housing and economic systems. In 100 major cities, average rents have hit their lowest level in four years showing a sharp decline in the real estate sector. This problem highlights not just short-term economic challenges but also deeper issues in China’s economy. As leaders try to manage the crisis, its impact on China’s future and global markets becomes increasingly concerning.

A crisis in numbers

In November 2024, average rents in 100 major Chinese cities dropped to 2,636 yuan per 100 square metres highlighting serious trouble in the real estate sector. According to The Rio This decline is caused by multiple factors coming together.

An oversupply of housing has overwhelmed the market with cities like Qidong in Jiangsu province seeing over 40,000 unsold units from just one developer. At the same time, China’s slowing economy has hurt the job market especially for young people reducing demand for rentals.

The problem is worsened by investors who bought properties hoping their value would rise. With property prices falling, they are now renting out homes at lower rates to cut their losses. This has pushed rents down even further. In many cases, property values have halved—homes that once sold for 400,000 yuan are now worth just 200,000 yuan. This steep drop shows the deeper economic and housing challenges facing China.

Government interventions

According to Xinhua, to tackle the sharp decline in the rental market, China has introduced several measures to stabilise the real estate sector. These include a 300-billion-yuan programme to help buy unsold housing and policies to ensure fair treatment for renters and homeowners. Other steps, such as lowering mortgage rates, reducing down payment requirements and easing purchase restrictions, aim to boost market activity.

Affordable housing is now a key focus. The government plans to provide housing for 4.5 million new urban residents, young people and migrant workers by the end of the year. They are also speeding up renovations of urban villages and run-down homes with an additional 1 million units set for upgrades.

One main focus is renovating urban villages and old buildings. This will turn unused properties into livable spaces and offer compensation to residents. This approach helps reduce the oversupply of homes while improving living conditions for many people. Reforms to the housing sales system moving from pre-sales to selling completed homes aim to restore consumer trust.

In January 2024, the government introduced the “white list” system. This allows local governments to recommend real estate projects that need financial support, ensuring they can get the funds they need. By the end of the year, loans approved under this system are expected to reach over 4 trillion yuan. These funds are crucial for stabilising the market and finishing incomplete housing projects.

Despite these efforts, the challenge is enormous. Unsold housing is valued at 14.9 trillion yuan—about 12 per cent of China’s 2023 GDP. This huge figure highlights the difficulty of solving the crisis. While there have been some positive signs, like a rise in new home sales in recent months, recovery is still fragile.

Structural issues in China’s housing model

China’s rental market crisis is not just about falling rents. It points to deeper problems in the country’s economy and housing systems. For years, real estate has been a major driver of China’s economic growth with policies encouraging property development and investment. However, this heavy reliance on the housing sector has created weaknesses that are now becoming clear.

A big issue is the oversupply of housing in many cities due to rapid construction and speculative investments. While this has led to “ghost cities” with empty buildings and falling property values, ironically high housing prices have made it difficult for many, especially young people and low-income families, to afford homes. This has caused a slowdown in demand showing that relying on real estate for growth is not sustainable.

Global implications

China’s real estate crisis has effects that go beyond its borders. As the world’s second-largest economy, China is a major player in global trade, investment and financial markets. A long-lasting downturn in its housing market could cause problems worldwide, such as reducing demand for commodities, cutting back Chinese investments abroad and creating uncertainty in global financial markets. For China, solving these problems is key to its own economic stability and to keeping its important role in the global economy.