China's real estate market, once a primary engine of its economic growth, is in a state of prolonged crisis. As property values plummet and major developers face collapse, Beijing has taken a drastic step: restricting access to independent sales data, effectively drawing a curtain over the true scale of the downturn.
This move to control information comes as the crisis deepens, wiping out trillions in household wealth and leaving millions of families in financial distress. The fallout from this multi-year slump is now rippling through the global economy, impacting everything from raw material prices to consumer spending.
Key Takeaways
- Chinese officials have ordered private data providers to stop publishing home sales figures, obscuring the market's true condition.
- The move followed a 42% year-on-year drop in new home sales by top builders in October, the largest decline in 18 months.
- An estimated $18 trillion in household wealth has been erased as property values have fallen across the country.
- The crisis was triggered by a 2020 government crackdown on developer debt, known as the "three red lines" policy.
- Experts predict the downturn could last for several more years, potentially extending into the late 2020s.
The End of a Two-Decade Boom
For over twenty years, China's property market seemed unstoppable. A combination of factors created a perfect storm for growth. In 1998, housing shifted from state provision to private ownership, unleashing massive demand. This was coupled with the largest urban migration in human history, as nearly half a billion people moved from rural areas to cities.
State banks provided abundant credit, fueling a construction frenzy that transformed city skylines. For ordinary Chinese families, real estate became the primary vehicle for savings and wealth accumulation. Property speculation was rampant, and rising home values made millions of middle-class households feel richer, encouraging them to spend more.
At the Peak
By 2020, the real estate bubble had expanded to a point where average home prices were more than 17 times the average salary, making homeownership a distant dream for many young people.
This era of unchecked growth came to an abrupt halt in 2020. Amid the first COVID-19 lockdowns, President Xi Jinping's government introduced a strict policy known as the "three red lines." These rules placed firm limits on the amount of debt property developers could accumulate, aiming to curb excessive borrowing and cool the overheated market.
A Crackdown That Triggered Collapse
The impact of the "three red lines" policy was immediate and severe. Cut off from easy credit, real estate giants like Evergrande and Country Garden quickly buckled under their massive debt loads. They defaulted on payments, sending shockwaves through the financial system.
More than 70 developers have either gone bankrupt or required state-backed bailouts to avoid complete failure. The bust has now continued for several years with no clear end in sight. Construction, once a pillar of China's GDP that accounted for up to a quarter of its economic activity, has slowed to a crawl, dragging down overall growth.
Controlling the Narrative
The recent decision to censor private data providers is a significant escalation in the government's efforts to manage public perception. By limiting independent reporting, officials can more easily mask the severity of price declines. According to Anne Stevenson-Yang, founder of J Capital Research, the market may have already seen a drop far greater than official figures suggest.
Stevenson-Yang believes the real decline is being hidden. "You likely have a market-wide drop of 50%, which could go down to 85% before it balances out," she stated, noting that some developers are offering deals equivalent to a two-thirds price cut on properties.
The Human and Economic Cost
Across China, the landscape is now dotted with half-finished apartment buildings and entire "ghost cities" of empty towers. Millions of families who poured their life savings into properties that are now worth less than their mortgages are trapped in negative equity. This has sparked public anger and sporadic protests from homebuyers demanding government intervention.
The problem is most acute in smaller, so-called Tier-2 and Tier-3 cities, where property values have plunged by as much as 30%. Even in major hubs like Beijing and Shanghai, prices have fallen by around 10% from their peak.
George Magnus, a research associate at the University of Oxford China Center, points to a massive oversupply issue. "There's still a lot of excess supply — up to 3-5 years of unsold apartments and housing, mostly in the smaller cities," he explained. Compounding the problem is a demographic shift: China's population is now shrinking, and the number of first-time homebuyers aged 20-35 is declining.
The slowdown has far-reaching consequences:
- Global Commodities: As the world's largest consumer of construction materials, China's reduced demand has hit prices for steel, iron ore, copper, and cement. This affects exporting nations like Australia and Brazil.
- Domestic Consumption: With household wealth tied to property, falling values have made Chinese consumers more cautious. This has weakened spending and reduced imports of foreign goods, from luxury brands to cars.
- Employment and Investment: The construction slump has led to job losses and reduced business investment, creating further drag on the economy.
A Long and Uncertain Road Ahead
Unlike previous economic downturns, Beijing has been hesitant to launch a massive, broad-based rescue of the property sector. Policymakers appear wary of creating another speculative bubble and seem content to let prices deflate gradually, prioritizing long-term stability over short-term stimulus.
While some targeted measures are being considered, such as subsidizing mortgage payments and lowering transaction fees, a large-scale bailout seems unlikely. The amount of money required would be enormous and could trigger inflation.
The duration of this crisis remains a key question. Property crashes in other countries offer a grim perspective. The U.S. housing bust that began in 2007 took about five years to bottom out. Japan's real estate collapse in the 1990s led to more than a decade of stagnant prices.
Analysts are preparing for a similarly extended downturn in China. Some at S&P Global Ratings believe the slump could persist well into the late 2020s. Stevenson-Yang predicts another "10 years of negative or flat growth" for the sector.
For millions of Chinese homeowners, this means the wealth they thought they had built has vanished, with little prospect of it returning anytime soon. "When the party ends and the cycle goes into reverse … the consequences can be very serious," Magnus warned, a sentiment now being felt across a nation grappling with the end of its property dream.
