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Give us our flats! The

angry victims of China’s
property crisis
Millions of people are waiting for homes that may never be built

https://www.economist.com/1843/2023/12/03/give-us-our-flats-the-angry-victims-of-chinas-property-crisis 2023/12/4, 09 26
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 Dec 3rd 2023 Share

By Don Weinland

G
u Lin chose the apartment at One Riviera
because of its location: a quiet residential

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 G because of its location: a quiet residential
neighbourhood just a few kilometres south of
Shanghai’s !nancial 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 "at 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) "at 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 !rms bankrupt and
investors out of pocket.

The chaos is a#ecting many well-o# 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

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 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.

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 "at, 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 !nancial
crisis, stop house prices from rising so rapidly and

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 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 e#ective. 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 "ats, estimates Gavekal, a consulting

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 !rm. 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 "at. Because they aren’t listed on
any stock exchange, it is very di$cult 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 un!nished
buildings. They live in concrete shells – boiling in
the summer and freezing in the winter – and must
heat water over a !re to have a bath.

D
ongying 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
"at to be built. He pointed to one of the upper "oors
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 "at, which he paid for in full with
cash two years ago. He is now reluctantly renting an
apartment nearby.

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 In some cities people have run
out of money and been forced to
move their families into
unfinished buildings
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 o# 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 lanwei lou 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.

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 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 bene!t 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 !nancial 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 !nes 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.

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 on the case.

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

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 o$ce have revealed a disturbing development
in the case. The petition o$ce has said those who
have not paid for the homes in full should do so now,
as is speci!ed 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 o$ce on a Thursday in

October, homeowners were gathering in a small
meeting room. The o$cials there would not take

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 meeting room. The o$cials 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.”

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 government and the courts.”

T
he sense of injustice is transforming the
would-be residents of One Riviera into angry
protesters. Once the deadline for delivering
the "ats 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 re"ective vests,
watched a company executive give a short
celebratory speech while a photographer dashed
about to record the moment.

“I feel the property rights and

livelihood rights of the
homeowners are being ignored
by the developer, the
government and the courts”
It might have helped smooth things over with local

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 It might have helped smooth things over with local
o$cials, 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 "oors.
“Hand over the "ats!” 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 o$ce,
swat team o$cers appeared at the scene. They
dragged several protesters into their vehicles and
dropped them o# in an area ten kilometres away
where it is di$cult to hail taxis. The group included
several elderly people and children, who had to walk
back slowly in the direction of the city until they
could !nd a cab. Police o$cers have visited many of
the One Riviera homeowners to warn them against
protesting.

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 Another form of resistance has been !nancial. A
cruel reality of the shortfall in building is that many
buyers are stuck paying o# 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 su#er serious
consequences if they default on their mortgage
payments.

In October 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
Talking to the media is also risky, knows Gu. But
after trying other avenues and getting nowhere, he

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 after trying other avenues and getting nowhere, he
felt compelled to speak out. He sees his own plight
as a re"ection 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 sti"ing 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. A

Some of the names in this piece have been changed.

Don Weinland is The Economist’s China business

and !nance editor

With additional reporting by Cecilia Wang

photographs: getty

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