• Sales fell 39.7 percent in July compared to the same month last year, totaling $77.6 billion (or 523.14 billion yuan).
• Drop from June to July was 28.6 percent, capping a two-month rally.
• Chinese housing boom fueled by debt-financed construction projects that sold homes before they were built.

The Chinese housing market has seen a sharp drop in home sales throughout July, as underlying economic problems become more apparent.

Sales fell 39.7 percent in July compared to the same month last year, totaling $77.6 billion (or 523.14 billion yuan). The drop from June to July was 28.6 percent, capping a two-month rally.

According to The Wall Street Journal, apartment sales increased in May and June compared to the previous months, but July largely offset those gains.

“China’s economy has been slowing for quite some time,” said Craig Singleton, a fellow at the nonpartisan Foundation for Defense of Democracies. “We are currently witnessing a rapid economic slowdown.”

Singleton contends that, while COVID-19 contributed to the initial problems, China’s slowing recovery is the result of “deeper structural, systemic problems.”

“One of them is, by some conservative estimates, China’s hyper-leveraged property market,” he said. “Because China’s property sector accounts for 30% of Chinese GDP, even minor fluctuations in that market can have a large impact on China’s broader global domestic product and growth.”

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The Chinese real estate market experienced a sales boom, fueled by debt-financed construction projects that sold homes before they were built. Due to the lack of completed projects, angry would-be homebuyers refused to pay their mortgages.

As of July 29, hundreds of buyers from approximately 320 projects across the country had refused to pay their mortgages. Prospective buyers have instead turned to buying second-hand homes or newly built state-owned homes, which can be more affordable.

Even lowering interest rates and down payments, as well as outright offering cash subsidies, have failed to stimulate enough activity to support the sagging housing market. Local governments have considered providing full-fledged relief funds to cash-strapped developers.

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