A decade ago, China was in the midst of a property boom. In Zhoukou, a fast-urbanising city in the country’s central plains, a property developer started a residential complex that promised “classic Chinese living”, full of greenery and next to good schools. Today, most of its high-rises and villas are concrete skeletons. The developer, Henan Zhongao Plaza, is bankrupt and its boss is in prison. In a few buildings a handful of hardy residents have moved in, but nearby flats stand empty; some are even missing their windows.
Developers used to sell homes before construction to raise funds. When the property market tumbled five years ago, their financing dried up. (Representational image.) (Bloomberg)
Welcome to a lanweilou, or a “rotten tail” building, a term that captures the idea of hopeful beginnings which end badly. Chaguan recently visited the Henan Zhongao development, trekking up dim staircases to see how China’s property crash is playing out—and, specifically, how it is affecting those who bought into the good life and landed far from it.
“Of course we were optimistic. We thought there would be a lot of activity around here,” says Mr Guo, a middle-aged resident. “I’m someone who likes quiet, but this is too quiet,” chuckles Ms Li, his wife. Given how desolate the complex is, whoever comes home first often calls the other to report that they are safely back inside. At least they were able to move in. In some cases, Ms Li notes sadly, older homebuyers died before getting their keys.
Similar fates have unspooled across China. Developers used to sell homes before construction to raise funds. When the property market tumbled five years ago, their financing dried up. According to Nomura, a bank, China had about 20m presold, unfinished properties as of 2023. Chaguan’s back-of-the-envelope calculation, based on average prices, is that a staggering 17trn yuan ($2.5trn) of household wealth is tied up in these idle projects—a little more than 10% of gdp. That is a big drag on the economy. But officials appear confident that, given enough time, they can guide the lanweilou to completion. Their unstated plan is to spread the cost as widely as possible and stamp out any embers of discontent.
Choosing to live in a lanweilou is quite unusual. In some extreme cases, desperate homebuyers have moved in before water and electricity are connected. In the Henan Zhongao development utilities have already been hooked up. But residents occasionally refuse to pay maintenance fees. The property-management firm, in turn, hits back. “The other day they just stopped the elevator,” Ms Li says. Eventually, the couple wants to move to a better home. But they know that they will probably be stuck in Henan Zhongao for years. “There’s not even a way to measure our home’s value. No one would ever want to buy it,” says Mr Guo.
Slowly, the government is chipping away at the problem. In 2022 it introduced a baojiao lou, or “guaranteed delivery”, programme. Officials created a whitelist of presold, unfinished developments, and then used a mix of incentives and pressure to get banks to extend credit to complete construction. In total Chinese banks have already approved loans of more than 7trn yuan for whitelisted properties (though much has been for debt rollovers, not new funding).
At Henan Zhongao there are glimmers of hope. What used to be the showroom now functions as a debt-restructuring office. A representative of the former developer sits next to a wood-burning stove for warmth. His focus is on organising papers that document who bought which apartments. His team is working with the government to bring in new investors. “It is almost all in place, and we probably will restart construction later this year,” he says.
Many people will be grateful to get the homes they have waited so long for. Generally, they have kept making mortgage payments—defaulting was the alternative. A small number dared to stage open protests, though officials cracked down swiftly on those. Still, for some buyers, the prospect of completion has a bitter twist. They will end up taking delivery of homes that are worth much less—in some cases as much as 50% less—than what they paid. If the construction is never finished, they might at least have a chance to walk away from their mortgages
No refunds
In Zhengzhou, about 200km (120 miles) from Zhoukou, one couple briefly became famous for posting videos online about their battle over a presold home. Zhang Yiliang and Dong Lijun filed lawsuits to recover their investment. But the court ruled against them, judging that the housing project was close to completion. Chaguan visited the site. It is indeed nearly ready for residents and looks reasonably attractive, albeit in the distant exurbs. On February 8th Mr Zhang and Ms Dong released yet another video, via back-up social media accounts (their main ones had been disabled). They do not want their flat. They want their money back. “Give us back our peaceful life,” Mr Zhang pleaded. “We shouldn’t have to clean up your mess any more.”
If the couple prevailed, they would get their downpayment back and escape an underwater mortgage. They could buy a new place for much less than their original property. But imagine the cascading consequences for the government. There would be millions more just like them. It would cost far too much to compensate them all, and it would ensure that many lanweilou remain forever unfinished. The only real option, so far as the government is concerned, is to plod on with “guaranteed delivery”.
In the Henan Zhongao project office, the manager working to get that development back on track sums it up best. “Ordinary people are bearing the costs. It is the only way to do it,” he says. There will be no bail-out for developers and none for homebuyers either. Instead, officials want to parcel out losses across the whole country. When the property sector boomed, everyone seemed to benefit. On the downside, it is a collective reckoning.
Subscribers can sign up to Drum Tower, our new weekly newsletter, to understand what the world makes of China—and what China makes of the world.
