Ghost towns and huge debts: what the crisis has taught the Chinese real estate market

August 25, 2025 was a symbolic moment for the real estate sector in China - the stock exchange in Hong Kong delisted the company Evergrande, the collapse of which, among other things, began the protracted crisis in the real estate market of China. In 2020, the country's authorities tightened financial requirements for developers and the next year began a relentless decline in housing prices. Because of the crisis in the real estate market, the Chinese economy is slowing down and may fall into a multi-year stagnation. What mistakes led to it?

Trading in shares of the country's once largest real estate developer was suspended a year and a half ago. But at the IPO of this company in 2009, demand was off the charts - it exceeded supply 46 times, recalls The New York Times.

The collapse of Evergrande, whose market capitalization exceeded $50 billion at its peak, "will no doubt leave deep scars in the minds of all investors in the market," Kenny Ng, a strategist at China Everbright Securities International, told Bloomberg.

Evergrande in the summer of 2021 became one of the first swallows that notified the world about the beginning of a full-scale decline in the world's largest real estate market. The company, which had accumulated more than $300 billion in debt, barely managed to avoid defaulting on its bonds, but it did happen in December.

In August 2023, Evergrande filed for bankruptcy in the United States, where it had assets, and in January 2024, a court in Hong Kong ordered its liquidation. The US firm Alvarez & Marsal, which dealt with the creditors of investment bank Lehman Brothers after its bankruptcy in 2008, became the external receiver. Evergrande has 1,300 unfinished projects in more than 280 cities, where hundreds of thousands of buyers are waiting for apartments for which they have already paid.

Two other Chinese market leaders, Country Garden and Sunac, defaulted in 2022. In 2023, Country Garden had about 1 million unfinished apartments in hundreds of cities. The company is now restructuring $14.1 billion of debt. It said in August this year that it built 74,000 apartments in the first half of the year compared with 150,000 in the same period in 2024, and that its half-year loss would be 18.5-21.5 billion yuan ($2.58-3 billion) compared with 15.1 billion yuan ($2.1 billion) a year earlier.

Hong Kong courts have ordered the liquidation of six Chinese developers since the crisis began, including, this August, mid-sized China South City Holdings, after it defaulted more than a year ago.

The scale of the downturn in China's real estate sector was such that it began to negatively affect even the global iron ore and oil markets.

Evergrande has become a symbol of both boom and bust in China's real estate market. In 1998, when the country's authorities created a national housing market (before that, private sales had been severely restricted), only a third of China's population lived in cities. Then mass urbanization began, which accompanied the rapid development of the manufacturing sector and fueled an economic boom. As a result, the number of urban dwellers grew by 480 million, to two-thirds of the population.

Urbanization was one of the important factors that international analysts in the early 2000s used to explain the then incipient long-term bullish trend in commodity markets: metals, cement, oil and other resources were needed in huge quantities to build housing and urban infrastructure on an unprecedented scale.

As a result, the contribution of the construction sector and related industries exceeded 25% of China's GDP. Sales of land for construction have become one of the main sources of replenishment of budgets of local and regional authorities. Housing prices rose sixfold in the 15 years to 2022, Bloomberg notes. Real estate has become the main object for private investment.

With an underdeveloped social security sector and the gradual emergence of capital markets, which was accompanied by the emergence of fraudulent schemes and pyramid schemes, people viewed apartments not only as a place to live, but also as a reliable way to keep their savings. As a result, real estate investments accounted for almost 80% of household assets. Estimates of the size of this market vary, Bloomberg cites a figure of $52 trillion in 2019 - about twice the size of the US real estate market.

But the construction boom was largely driven by borrowed funds, and during crises the authorities relaxed lending and regulatory norms and launched incentive programs to support developers and prevent prices from falling.

While the market was booming, unsold inventory did not prevent the construction of new housing, but during the downturn it became an important negative factor. Inefficient capital allocation and a bubble in the market were evidenced by ghost towns with high-rise buildings with only a few apartments each.

The number of new apartments for sale is now more than double the historical average, the NYT cites data from the Yicai Analytical Group at Shanghai City Hall. In the first seven months of 2025, the number of housing under construction fell by nearly 20 percent compared with the same period last year, according to China's National Bureau of Statistics.

According to its own data, of the 70 largest cities, monthly housing prices in the secondary market have been falling almost everywhere since the second half of 2023. On the primary market they were growing in July only in 10 cities. In April, the market seemed to show signs of revival, but they were probably false, said analysts at the Center for Economic Forecasting of Russia's Gazprombank. In confirmation, they cited figures for July: such indicators as sales in the primary market, construction started and areas commissioned turned out to be the lowest in 15-16 years.

In February 2025, Victoria Yu put up for sale the apartment she and her husband bought three years ago in the industrial city of Hefei in the center of China for about $330,000, and they spent another $80,000 on renovation and decoration. They put the fully furnished apartment up for sale at the purchase price, but even that was not enough to attract buyers. All offers, and there were dozens of them, were at least 15% lower, Victoria Yu told NYT.

Yu eventually withdrew the apartment from sale, but Lily Zhang managed to sell her Beijing home, but at a discount from the asking price. She and her husband bought it in 2016, when prices were skyrocketing, and eventually sold it for the purchase price. "It was as if nothing had happened in those nine years," Zhang says.

The crisis in the market began with the decision of the Chinese authorities to limit the financing of developers in 2020. Beijing began to fear that the builders' high level of debt would hit the banking sector through the growth of overdue loans. In addition, in an effort to ramp up construction, companies placed more and more foreign currency bonds in Western markets. This made their financial position less and less stable.

Finally, Chinese President Xi Jinping began to talk a lot about the need to fight property and social inequality and the policy of "shared prosperity". But housing in the most popular cities was becoming less and less affordable. The worst in the mainland was Shenzhen, the country's technology capital. There, the average two-bedroom apartment in 2020 cost 43.5 times the average income of a city dweller - almost $900,000 versus about $20,000 (in terms of conversion). According to real estate agency E-House (China) Enterprise Holdings, in Beijing the figure was 41.7, Shanghai - 36.1, while in London - 15.6, Tokyo - 14.7, New York - 10.5.

As a result, the Chinese authorities imposed much stricter debt-to-equity ratios and liquidity requirements on developers. This deprived them of a significant portion of money for construction. The reduction in the number of projects further worsened the financial situation, as the companies received a significant share of funds from sales at the excavation stage.

An additional negative factor was the restrictions imposed during the COVID-19 pandemic and the quarantines under which Chinese authorities closed down cities of many millions of people. The house of cards began to crumble.

The negative effects from the lingering crisis in China's real estate market "will be felt for a very long time," says Andrew Collier, a senior fellow at Harvard University's Kennedy School of Government. This crisis is slowing China's economy due to a drop in activity in the construction sector and pessimistic sentiment among consumers.

As of July, since the peak in 2021, the cost of housing in the 70 largest cities has fallen by 10.7% in the primary market and by 18.8% in the secondary market, according to a report by Lynn Song, ING's chief economist for China. Moreover, the decline has accelerated in recent months.

ING sees the bottom as one of the most important factors in restoring consumer confidence and spending growth: "It's hard to expect consumers to spend with more confidence if their most important asset continues to fall in value every month". Against this backdrop, economic activity has slowed across the board, Son adds: retail sales, fixed asset investment, and industrial value-added growth have reached their lowest levels this year.

China's real estate market has not collapsed precipitously, as it did in the early 1990s in Japan, which has since experienced three lost decades. But the half a decade-long crisis could be one of the factors that puts China at risk of repeating Japan's fate.

This article was AI-translated and verified by a human editor