China's Property Crisis

How a decades-long housing boom became a major drag on China's economy, what happened to developers like Evergrande, and why it matters for households.

For about two decades, property was one of the main engines of China’s economy. By some estimates, real estate and related industries accounted for around a quarter of China’s economic activity at their peak. Since 2021, the sector has been in a prolonged crisis.

The boom

Several factors fuelled the housing boom:

Urbanisation: hundreds of millions of people moved to cities.
Housing reforms in the late 1990s created a private housing market.
Limited investment options: with low bank deposit rates and restrictions on investing abroad, many households saw housing as the best place for savings.
Local government finance: local governments earned a large share of their revenue from selling land-use rights to developers.
Pre-sales: developers sold apartments before building them, using buyers’ deposits to fund construction and expansion.

The bust

In 2020, the government introduced the “three red lines”, limits on developers’ debt relative to their assets, equity and cash, to reduce risk. Highly indebted developers could no longer borrow freely. In 2021, Evergrande, one of China’s largest developers, defaulted on its debts. Many others followed, including Country Garden. A Hong Kong court ordered Evergrande to be liquidated in 2024.

Effects

Unfinished homes: many buyers had paid for apartments that were not completed, leading to mortgage payment boycotts in 2022.
Falling prices and sales, reducing household wealth, since most Chinese household wealth is in property.
Local government strain, as land sale revenue fell sharply.
Weaker growth, as construction and related industries shrank.

The pre-sale problem

A family pays a large deposit and starts a mortgage for an apartment due to be finished in two years. The developer uses the money to buy more land for other projects. When credit dries up, construction stops. The family is left paying a mortgage on a home that does not exist. This happened to many buyers, eroding trust in the housing market.

Policy response

The government has taken steps to support the sector, including easing purchase restrictions, cutting mortgage rates and programmes to ensure presold homes are completed. Economists debate how quickly the sector can stabilise and what will replace property as a growth driver.

Thinking a property slump only affects developers

Because property was tied to household savings, local government revenue, construction jobs and industries like steel and cement, its slump affected the whole economy, from consumer confidence to public spending.

Key takeaways

Property and related industries were a major share of China's economy at their peak.
Urbanisation, limited investment options, land sales and pre-sales fuelled the boom.
Debt limits introduced in 2020 triggered defaults at developers such as Evergrande.
The crisis has hurt households, local governments and overall growth.