China’s real estate crash: Boom that broke economy

After two decades of explosive growth, China’s real estate bubble reached unsustainable heights by 2020, with home prices more than 17 times the average salary. A perfect storm of 1998 housing reforms, massive rural-to-urban migration, and abundant credit fueled a construction frenzy. Families poured savings into apartments, while property speculation became a defining feature of middle-class life.

The turning point came during China’s first wave of COVID-19 lockdowns, when President Xi Jinping’s government imposed the “three red lines” rules, limiting developer debt. The result was brutal: Evergrande, Country Garden, and dozens of smaller firms defaulted, with over 70 developers collapsing or needing state-backed bailouts, DW writes. 

More than five years on, the bust shows no sign of easing. Barclays estimates that more than $18 trillion in household wealth has evaporated as home values collapse. Construction, once a GDP driver, has slumped, dragging national growth below Beijing’s targets.

The downturn is so sensitive that Chinese authorities last month ordered private data providers to stop publishing home sales figures. This followed a 42% year-on-year drop in new home sales by the top 100 builders in October — the steepest monthly decline in 18 months, according to China Real Estate Information.

Anne Stevenson-Yang, founder and research director of J Capital Research in Taipei, argues the true price drop is even worse.

“You likely have a market-wide drop of 50%, which could go down to 85% before it balances out,” she told DW.

A colleague in Xi’an reportedly received offers of three homes for the price of one, reflecting a two-thirds reduction per property. Tier‑1 cities like Beijing and Shanghai have seen prices fall roughly 10% from their peaks, while Tier‑2 and Tier‑3 cities, including Chengdu and Dongguan, have experienced declines of up to 30%.

Across China, half-finished projects, ghost cities, and millions of households trapped in negative equity have sparked protests as citizens hope for government intervention.

“There's still a lot of excess supply — up to 3-5 years of unsold apartments and housing, mostly in the smaller cities,” said George Magnus, research associate at the University of Oxford China Center. “It'll take a long time to clear, especially as the cohort of first-time buyers — 20-35 year olds — is now declining.”

Real estate, once accounting for up to a quarter of GDP, fueled double-digit growth through the 2000s and early 2010s. Its collapse has rippled through steel, cement, employment, and investment, hitting global exporters such as Australia, Brazil, and Chile.

“Steel and cement prices and output are dropping, employment and [business] investment are weak — all of them collateral damage [from the property crash],” Stevenson-Yang told DW.

Unlike past downturns, Beijing has avoided broad stimulus to prevent another speculative bubble.

“You get to a point that you can't stimulate because the amount of money required would be too great — it would be inflationary,” Stevenson-Yang said.

Targeted measures, including mortgage subsidies and tax rebates, are under consideration.

Property crashes historically take years to recover. In the U.S., the 2007 bust stabilised by 2012; in Spain, post-2008 recovery took five years; Japan’s 1990s bubble stagnated for over a decade.

Stevenson-Yang forecasts “10 years of negative or flat growth” in China, with S&P Global Ratings suggesting the downturn could persist into the late 2020s.

For ordinary families who invested their savings in apartments, the pain is tangible: mortgages they can’t escape, homes they can’t sell, and prices likely far below 2020 highs for years to come.

“When the party ends and the cycle goes into reverse … the consequences can be very serious,” Magnus told DW.

By Sabina Mammadli