China's Property Slowdown, Explained Calmly

China's property market—which makes up roughly 25% of the country's GDP—is experiencing its most significant slowdown in decades. Major developers like Evergrande and Country Garden have defaulted on billions in debt, apartment sales have plummeted, and prices in many cities are falling.

Unlike the 2008 U.S. housing crisis, this isn't primarily about homeowners defaulting on mortgages. Instead, it's about developers who borrowed heavily to build apartments before they were sold, a system called "pre-sales." When sales slowed, these companies couldn't complete projects or repay debts.

How did we get here?

For two decades, Chinese property was considered the safest investment available. Local governments relied on land sales for revenue, banks eagerly lent to developers, and families bought multiple apartments as savings vehicles. The phrase "property only goes up" became conventional wisdom.

Beijing actively encouraged this boom. Between 2000 and 2020, urbanization accelerated, moving hundreds of millions of people from rural areas to cities. Real estate development became an economic engine—creating jobs, generating tax revenue, and driving related industries like steel and cement.

What changed?

In 2020, the government introduced the "three red lines" policy to limit developer borrowing. The goal was to cool down excessive speculation and reduce financial risk. But the policy worked too well—developers suddenly couldn't borrow to complete projects, sales dried up, and confidence collapsed.

Who's affected?

Homebuyers: Millions of families paid deposits for apartments that remain unfinished. Some have staged mortgage boycotts, refusing to pay for homes they can't move into.

Developers: Giants like Evergrande and Country Garden face bankruptcy. Smaller developers have vanished entirely.

Local governments: Land sales previously provided 30-40% of their revenue. With fewer sales, they face budget shortfalls.

Banks and investors: Chinese banks hold trillions in developer loans. International bondholders have suffered massive losses.

Why this matters

For China: This isn't just about real estate—it's about confidence in the economic model. For decades, Chinese families viewed property as a guaranteed path to wealth. That assumption is now in question, which affects spending, saving, and overall economic sentiment.

The slowdown also reveals deeper structural challenges: an aging population means fewer first-time homebuyers, urbanization is slowing, and many cities already have excess housing supply.

For the world: China's property sector consumes massive amounts of raw materials—steel, copper, cement. A sustained slowdown affects global commodity prices and export-dependent economies.

International investors are also exposed. While direct foreign investment in Chinese developers was limited, the ripple effects through Asian financial markets and commodity-exporting countries are significant.

What to watch next

Government intervention: Beijing has announced support measures—loosening mortgage rules, encouraging banks to lend, and helping developers complete unfinished projects. Watch whether these restore confidence or merely delay defaults.

Completion rates: The key metric is how many pre-sold apartments actually get finished and delivered to buyers. This determines whether trust can be rebuilt.

Price stabilization: In major cities like Beijing and Shanghai, prices have fallen 10-20% from peaks. Whether they stabilize or continue falling will signal the crisis depth.

Alternative investments: If Chinese households lose faith in property, where will they put their savings? Stock markets, bonds, or consumption could benefit—but this represents a fundamental shift in behavior.