The most interesting part of China's stimulus announcement was the omission of a key phrase that ignited the 2020 crackdown on the real-estate sector

China's once free-spending property buyers are now cautious about their real-estate purchases amid the country's post-COVID economic slump.

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• China's property market is a huge part of the economy, but it's now in a deep slump.
• Beijing has been cracking down on excessive debt and speculation in the property market since 2020.
• Authorities are now trying to boost the property market by encouraging consumption.

When Chinese President Xi Jinping proclaimed, "Houses are for living in and not for speculation," in October 2017, the statement was met with stupendous applause in a red-hot real-estate market.

The mantra popularized by Xi has been an official fixture in major official communications since 2016, when Beijing was seeking to cool the sizzling property market, according to Bloomberg. Since 2019, the slogan has been present at every review of China's top leadership, per the outlet.

Today, China's property sector is so deep in the dumps that Beijing omitted a reference to Xi's phrase at a key economic meeting in end-July that preceded a round of economic stimulus to revive the country's economy.

The exclusion of the phrase is a big deal.

And while stark, the omission is in line with other major U-turns China pulled since the end of last year when it was starting to exit on-off COVID-19 lockdowns.

Beijing has tried to rein in property prices for years and succeeded in 2021 — but it crashed the market

The slogan "Houses are for living in and not for speculation" first appeared in an official statement after China's top economic leaders met in December 2016. 

To understand it, we need to rewind to the late 1990s when China started witnessing a decades-long boom in its real-estate sector. 

The sector got so big that it — along with related industries — contributes as much as 30% to the country's GDP, per a report from Spain's Caixa Bank in January 2022. 

But the property craze was also fueled by debt. The market was so hot that Chinese developers were taking on huge borrowings to build apartments ahead of demand. In fact, property developers built so many apartments that one-fifth of the homes in China were empty, Insider's Lina Batarags reported in October 2021.

Expectedly, Beijing has tried to cool the frothy market for years — and it did seem as if the sector would get some respite when it experienced a downturn in 2014. 

However, Chinese home prices started climbing persistently from 2015 onward, fuelling renewed concerns over an asset bubble that was making property prices unaffordable for ordinary people .

To manage risks and affordability, Beijing started cracking down on the sector by introducing the so-called "three red lines" policy regulating debt ratios for property developers. This measure was introduced in August 2020 to limit the amount of money property developers could borrow.

The debt ratios worked — but it started sending the property sector into a crisis in 2021 when property giant Evergrande ran into a debt spiral. Other Chinese real-estate developers ran into similar issues, and the sector started to default on its bond payments.

In the background, there were concerns that China's property crisis could spill over into the broader domestic and global economy.

"There are only a handful of private sector players in the housing market that are left surviving, meaning they have not defaulted on their bonds," Bo Zhuang, a senior sovereign analyst at Loomis Sayles, told Insider.

"So I will say the private sector has overly deleveraged in a short period of time," he added.

Now, China's trying to reverse years of crackdowns to boost its flagging economy 

It didn't help that China's real-estate slowdown also came at a time when the country was still grappling with on-off COVID-19 lockdowns, which hit growth. In 2022, China's economy grew 3% — well below its official 5.5% target, intensifying the drag on the property sector.

And the overall market slump has begun to seep into the property sector. The situation is so dire now that a developer in eastern China offered free gold bars to homebuyers. Another project in the same region is also offering a BOGO deal for those buying an entire floor of apartments, Nikkei reported on Wednesday.

Now Beijing's primarily looking to stabilize the property market through consumption rather than stimulating supply. This pivot is because it needs to shore up the sector but wants to prevent the "Japanification" of its real-asset sector, Zhuang told Insider, referring to Japan's economic stagnation since an asset bubble burst in the early 1990s.

To that end, Chinese authorities are trying to rev up consumers' demand instead.

Last weekend, China's largest cities — including Beijing and Shenzhen — said they would implement measures to meet the needs of homebuyers, hoping this would support the property sector, per Reuters.

On July 31, Beijing released a plan targeting the automobile, real estate, and services sectors that aim to "give full play to the fundamental role of consumption in economic development," according to Insider's translation of an official statement from the country's top planning agency. They include subsidies for smart green home appliances and building materials in rural areas. 

However, "the steps have been timid, and the road map is still not quite clear," Nomura economists wrote in a July 31 note seen by Insider.

"While the recent moves by Beijing should be encouraged, markets need to curb their enthusiasm regarding the scale and impact of these easing measures," the note said.

Consumers are also unlikely to be clamoring for new apartments amid broad economic uncertainty and record-high youth unemployment rate and slower economic growth. 

"Households have lost the 'animal spirit' because they are not willing to invest or speculate their future in the housing sector anymore. I will say they have permanent COVID scarring," said Loomis Sayles' Zhuang.

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