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China’s property meltdown is battering middle-class wealth

SHANGHAI – Stock investments: down 30 per cent. Salary package: down 30 per cent. Investment property: down 20 per cent. As Mr Thomas Zhou reflects on 2023, his household finances are front of mind.

“It’s just heart-breaking,” the 40-year-old financial worker from Shanghai said. “The only thing that still keeps me going is the thought of keeping my job so I can support my big family.”

Mr Zhou’s predicament will resonate with many people in China, where slumps in the real estate and stock markets are wiping away household wealth. And as the world’s second-largest economy struggles to regain momentum after years of Covid-19 lockdowns, there is also the growing threat of unemployment.

Now, middle-class households are being forced to rethink their money priorities, with some pulling away from investing, or selling assets to free-up liquidity.

At the heart of the decline in family wealth is China’s real estate meltdown, which is having a pervasive effect on a society where 70 per cent of family assets are tied up in property. Every 5 per cent decline in home prices will wipe out 19 trillion yuan (S$3.6 trillion) in housing wealth, according to Bloomberg Economics.

“It might just be the beginning of more wealth losses in coming years,” said Mr Eric Zhu, an economist with Bloomberg Economics. “Unless there’s a big bull market, small gains in financial wealth are unlikely to offset losses in housing wealth.”

While China’s official data show just a mild drop in its existing home prices, evidence from property agents and private data providers indicate declines of at least 15 per cent in prime areas in its biggest cities.

Rainy days

Financial investments offer little respite. Chinese shares underperformed emerging-market peers by the widest margin since at least 1998 earlier in December. Mutual funds were in the red as at the third quarter. Yields on banks’ wealth management products remain subdued and deposit rates have seen three reductions in the past year.

The US$2.9 trillion (S$3.9 trillion) trust industry, where wealthy Chinese investors have sought high returns from products sold by loosely regulated shadow banks, is showing cracks, with one recent scandal potentially involving tens of billions of dollars in losses.

Net worth per adult in China slid 2.2 per cent to US$75,731 in 2022, UBS said in its August global wealth report, while total assets per adult fell for the first time since 2000 as non-financial holdings shrank due to the housing market difficulties.

Media worker Echo Huang watched as the value of her investment property in Ningbo, Zhejiang province, fell about one million yuan from its 2019 peak. Now, she considers herself lucky to have sold it in May before prices dropped further.

Ms Huang gave the majority of the proceeds from the property sale to her parents for their retirement savings, and put the rest in demand deposits and money market funds that allow real-time redemptions. She ruled out stock investments after her current holdings more than erased all gains since 2018.

“My company is struggling to survive, so who knows if I might get paid less or even laid off one day,” said the 39-year-old. “My main goal is stability in my assets, and I want to keep enough liquidity on hand.”

Wealth protection

Even high-net-worth individuals are turning more conservative, according to a joint survey by China Merchants Bank and Bain & Co. The number of the cohort citing “wealth protection” among their major money goals jumped significantly in 2023, and mentions of “wealth creation” decreased.

Mr Peter Bao, who works at a big technology firm in Beijing, is following a prudent investment strategy.

His stock holdings, mostly in US-listed Chinese shares, at one point halved to the equivalent of about five million yuan from a late 2020 peak. Over the past two years, he has shifted part of his assets to money market funds and fixed income products that require less analysis. He is hoping that he will be able to withstand short-term volatility and potential losses.

No options

Faced with few chances to grow her wealth, 35-year-old Dani Wang said she is “lying flat” and hoping the domestic economy and capital markets improve by 2026.

She has deleted her trading apps and has no plans to adjust her one million yuan in stock and equity fund positions, or even check prices. She is also ignoring any volatility in her 50,000 yuan Dogecoin investment made at the start of 2022, which has halved.

Hangzhou-based technology industry worker Lily Liu, who manages a few million yuan of family savings, agrees. While her parents’ property-related business suffered a steep income drop, her husband’s salary bump in recent years left her with more money at her disposal.

“I feel like my risk tolerance has reduced along with the increase in wealth,” said Ms Liu, who is putting one of her two homes on sale, but has no idea where to invest the proceeds. “I wouldn’t bother spending more time on investments. Most likely, it won’t pay off in this macro environment anyway.” BLOOMBERG

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