Give us our homes! The angry victims of China’s property crisis

Gu Lin chose the apartment at One Riviera because of its location: a quiet residential neighbourhood just a few kilometres south of Shanghai’s financial district and a short bike ride from the Huangpu river, which bisects the city into east and west. Although Gu had to pay a premium for such an area, he reckoned it made the flat more likely to hold its value if the property market, as he suspected it would, eventually ran out of steam.

He made a 70% downpayment on the 20m yuan ($2.8m) flat in March 2020. His wife and their child, along with Gu’s parents, were due to move into the three-bedroom home in spring 2022. Gu, who is from Shanghai and has a well-paid, management-level job, imagined strolling with his family beneath the 300 cherry trees the developer planned to plant next to the two residential towers. But almost two years after the family were meant to get the keys, One Riviera is still a building site.

Gu Lin is one of millions of Chinese people who ploughed their life savings into a property that may never get built. An unprecedented crisis in the real-estate sector, caused by a mix of rapacious developers, covid-19 lockdowns and misguided government policies, has left firms bankrupt and investors out of pocket.

The chaos is affecting many well-off Chinese – the people who have done well since the Communist Party opened up China’s economy in the 1980s. Some have stopped paying their mortgages, which in China often start long before newbuilds are completed. A few have staged demonstrations. So far protests have been small and sporadic, but politicians are worried by the prospect of metastasising unrest and a banking crisis caused by unpaid mortgages.

When we met at a Starbucks on the outskirts of Shanghai in August, Gu got straight to the point. He stands to lose about 14m yuan if he does not receive his home. Around 300 of his fellow buyers paid in full. Gu is a calm and understated man in his 40s. But he was visibly troubled as he explained his ordeal, often furrowing his brow.

Just months after he bought his flat, the Chinese government introduced a raft of policies designed to cool an overheating property market. Policymakers were concerned that big developers were accumulating too much debt. They also wanted to tame the companies, which had accrued too much market power for the Communist Party’s tastes.

The government restricted the amount of leverage property developers could take on, banning companies from having more short-term debt than cash. Policymakers hoped this could avert a financial crisis, stop house prices from rising so rapidly and discourage the speculation that led to China’s notorious ghost cities, where entire districts of empty homes sit unsold.

The policies proved too effective. In mid-2021 Evergrande, the world’s most indebted developer, began to struggle to pay its debts. It defaulted later that year. In 2022 covid lockdowns hammered the Chinese economy. Fearing an uncertain future, potential buyers saved their money rather than buying homes. Many developers halted construction and a wave of defaults swept the market.

Victims include developers’ creditors – asset managers and hedge funds – that have been unable to recoup their investments. But ordinary households are bearing the brunt of the crisis. The big developers alone owe homebuyers about 7trn yuan-worth of flats, estimates Gavekal, a consulting firm. Country Garden, a former industry giant that has now defaulted, is building 1m homes.

But the vast majority of property developers are small companies such as Dongying, which is building Gu Lin’s flat. Because they aren’t listed on any stock exchange, it is very difficult to know the scale of the problem. Some economists estimate that two-thirds of unbuilt homes will never be completed, although others are more optimistic. In some cities people have run out of money and been forced to move their families into unfinished buildings. They live in concrete shells – boiling in the summer and freezing in the winter – and must heat water over a fire to have a bath.

Dongying means “eastern cherry”, a nod to the trees the property developer was meant to plant. When I visited One Riviera on a warm afternoon in mid-October, there wasn’t even a sapling in sight. (Dongying, which was contacted for this article, would not comment on the situation.) I met Liang Ming, a man in his 40s with a white-collar job at a foreign company, who is also waiting for his flat to be built. He pointed to one of the upper floors of one of the towers, showing me where his family and belongings should be. Liang said he sold two other apartments in order to come up with the 23m yuan to buy this flat, which he paid for in full with cash two years ago. He is now reluctantly renting an apartment nearby.

The towers appear far from complete. Most of the windowpanes are in place, but there are still large swathes of exposed concrete. The building site is fenced off with tall, crumbling cement walls and sheet-metal barricades. Behind them is a wasteland of weeds and piles of rusting building materials. Not a single construction worker could be seen that day. Liang said no substantive construction is taking place, although he has sometimes spotted the odd worker.

If a construction site sits dormant for a long time, local authorities can label it a lanweilou, or an abandoned project. Investors in lanweilou have more legal recourse than those in projects that are still active – even if only nominally, like One Riviera. Building companies, said Liang, try to keep up the appearance that progress is being made.

One Riviera occupies a legal grey area. In 2020 Dongying sold its debt to a company called Cinda Asset Management, a state-owned conglomerate that specialises in taking over the bad debts of illiquid companies. Publicly available records show Cinda as the true owner of the One Riviera project. It has shown little interest in completing the project and may even benefit if it fails: if a company defaults on its debt, Cinda can take over its assets.

A representative for Dongying told homeowners earlier this year that Cinda acquired shares in the company in exchange for its debts, but that it was purely a financial investor and under no obligation to complete the homes. It is unclear who controls the homeowners’ deposits, or where the money went: the escrow account meant to hold One Riviera’s funds has been drained.

Homeowners have sued Dongying several times. But this has resulted in only tiny fines for the company, which the homeowners say it has simply ignored. Gu Lin and Liang Ming have both been advised that taking legal action against Cinda is pointless – the company is so powerful, local courts would not take on the case.

The only channel for talks has been at the lowest level of government, a “petition office” close to One Riviera where local residents can complain about everything from noisy neighbours to small-scale corruption. Every Thursday a group of homeowners holds a meeting with a few district managers. The group has drawn up charts to keep track of whose turn it is to “take shifts” in petitioning officials.

Liang said the talks are like a game of football without goals: questions of responsibility are kicked back and forth with no outcome. Recent discussions in this office have revealed a disturbing development in the case. The petition office has said those who have not paid for the homes in full should do so now, as is specified in their contracts. Otherwise they will be in breach of the original terms and may lose any claim they have to the homes.

When I visited the petition office on a Thursday in October, homeowners were gathering in a small meeting room. The officials there would not take questions on the matter. Some of the homeowners shuddered at the sight of a foreign journalist. Although a few in the group have welcomed attention from the media, others believe it will only make matters worse. One elderly man asked me to leave at once. “The Communist Party fears foreign media more than anything else,” he said, shooing me away.

Dongying refers to the homeowners as xiaoyezhu, or “petty proprietors”. The term is often used in disputes over much smaller assets and does not recognise that the life savings of hundreds of families are on the line, complained Gu Lin. “I have repeatedly disputed that phrasing. I think it’s pretty telling how they think about people’s livelihoods. I feel the property rights and livelihood rights of the homeowners are being ignored by the developer, the government and the courts.”

The sense of injustice is transforming the would-be residents of One Riviera into angry protesters. Once the deadline for delivering the flats passed, they began staging demonstrations, designed to catch the eye of local government. Dongying, seemingly worried about attracting unwanted attention from the authorities, announced a ceremony to mark the near-completion of the project.

It called the event a “100-day battle” – a reference to the promise that buyers would get the keys within the next 100 days. On March 5th a stage was erected at One Riviera, behind which was a three-metre-high backdrop with motivational slogans painted in thick, silvery brushstrokes: “Move Swiftly and Diligently” and “Row Quickly into the Lead”. A few dozen homeowners, in hard hats and reflective vests, watched a company executive give a short celebratory speech while a photographer dashed about to record the moment.

It might have helped smooth things over with local officials, but it did nothing to placate the homeowners. In October (well after the 100 days had passed) Liang Ming and several others broke into the construction site and climbed up several floors. “Hand over the flats!” they chanted from their vantage point over the city. The police arrived and roughed up some of the protesters, shoving people to the ground, said Liang.

At another protest this year, which One Riviera homeowners held in front of the petition office, SWAT team officers appeared at the scene. They dragged several protesters into their vehicles and dropped them off in an area ten kilometres away where it is difficult to hail taxis. The group included several elderly people and children, who had to walk back slowly in the direction of the city until they could find a cab. Police officers have visited many of the One Riviera homeowners to warn them against protesting.

Another form of resistance has been financial. A cruel reality of the shortfall in building is that many buyers are stuck paying off loans for homes that may never exist. Gu and some of his fellow homeowners said in September that they would no longer pay their mortgages.

They are in good company: a group of dissident netizens began collecting data on boycotts across China in June 2022, revealing that tens of thousands of people had stopped paying as a form of protest. Some frustrated homebuyers posted statements online declaring they would not pay until they received their keys. This puts pressure on banks and on local governments to solve the problem, although Gu and his would-be neighbours could suffer serious consequences if they default on their mortgage payments.

Talking to the media is also risky, knows Gu. But after trying other avenues and getting nowhere, he felt compelled to speak out. He sees his own plight as a reflection of China’s bigger problems with the rule of law. “People have injected generations of family wealth into these homes, and this is what we get,” he said.

The unwritten social contract with the Communist Party stipulates that it presides over increasing material prosperity but citizens must unquestioningly obey their rulers. However, as the economy stumbles, those citizens are required to remain obedient. It’s a stifling experience and confusing for people who have lived through decades of rapid growth.

His own predicament has led Gu to believe there must be many like him around the country. “This is Shanghai,” he exclaims. China’s largest city has a sophisticated court system, with some of the country’s best lawyers and judges who are well versed in commercial law. If such troubles can befall him here, anyone is susceptible. ■

Some of the names in this piece have been changed.

Don Weinland is The Economist’s China business and finance editor

With additional reporting by Cecilia Wang

PHOTOGRAPHS: GETTY