Key Takeaways
- China’s property market has been in a four-year decline, with prices falling, distressed household selling, and major developers such as Evergrande and Vanke posting huge losses or being liquidated/delisted.
- A decades-long, debt-fueled building boom tied to urbanization and land sales left developers overleveraged and households highly exposed, making the sector systemically important to growth and wealth.
- Beijing’s 2020 “three red lines” crackdown and tighter mortgage conditions triggered a liquidity crunch that led to a wave of defaults, unfinished projects and record bad loans at Chinese banks.
- Despite multiple rounds of support and easing, authorities are now considering fresh measures such as mortgage subsidies and tax breaks, as the property slump threatens financial stability and reinforces deflationary pressure.
What Happened?
China’s property market, once a central growth engine, has been stuck in a prolonged downturn for four years with no clear bottom. Home prices continue to slide, financially stressed households are increasingly forced to sell at discounts, and heavily indebted developers are failing or being pushed into liquidation. The collapse of Evergrande—once China’s largest developer by sales and now delisted from Hong Kong after a court-ordered wind-up—has become the emblem of the crisis, while government-linked China Vanke’s record 49.5 billion yuan loss for 2024 shows the damage reaches even the strongest names.
Since Beijing introduced strict leverage limits and tightened financing in 2020, multiple large builders including Sunac and Country Garden have defaulted; hundreds of millions of square meters of new housing remain unsold; mortgage delinquencies have climbed to multi-year highs; and Hong Kong courts have issued a string of wind-up orders for Chinese developers. Despite policy support since 2022, new and resale homes logged their steepest price declines in at least a year in October 2025, prompting Beijing to study yet another round of rescue measures.
Why It Matters?
For investors, China’s property troubles are not a contained sector problem but a structural drag on the entire economy and financial system. The housing boom that began after market liberalization in 1998 rode a massive wave of urbanization and became both a growth engine and a wealth machine: real estate at its peak accounted for roughly a quarter of domestic output and about 80% of household assets, with the total housing-related stock approaching $52 trillion by 2019. That model was built on leverage—developers pre-sold homes, tapped opaque onshore and offshore funding, and bid aggressively for land while local governments became dependent on land sales to fund spending.
When authorities moved to cap debt (“three red lines”), tighten credit and cool an affordability crisis, the sudden reversal exposed years of overbuilding and speculative excess, leaving developers illiquid and households overleveraged. The result is a negative feedback loop: falling prices, unfinished projects, rising mortgage stress, and increasing bad loans at banks—already at a record 3.5 trillion yuan—while local governments struggle with weaker land revenues. This reinforces deflationary pressure, with economists warning that official CPI data understate the impact of falling housing-related costs, complicating Beijing’s efforts to stabilize growth and prices.
What’s Next?
Beijing’s immediate priority is to prevent the property downturn from turning into a full-blown financial crisis while gradually shrinking the sector’s outsized role in the economy. Authorities have already eased some of the earlier constraints—boosting financing channels, providing special loans to complete stalled projects, cutting mortgage rates, relaxing purchase restrictions, and lowering transaction costs—but these steps have yet to restore confidence or clear excess inventory.
Policymakers are now weighing more aggressive demand-side supports, including subsidizing mortgage interest, offering bigger income tax rebates for borrowers, and further reducing fees on home sales to coax cautious buyers back into the market. Investors should watch for the scale and targeting of any new measures (completion of unfinished projects vs. broad demand stimulus), trends in home sales and prices, and the trajectory of bank asset quality and local government finances. A slow, managed workout remains the base case, implying persistent drag on Chinese growth, pressure on construction-related employment and commodities demand, and continued deflation risk. A sharper deterioration in prices, defaults or bank stress, however, could force Beijing into more radical interventions with broader implications for Chinese assets and global risk sentiment.
