China Crisis | China's real estate sector in free fall: The underestimated Achilles' heel of the global economy

### The 90 Percent Cleanup: China's Real Estate Crisis Is Worse Than the World Wants to Believe ### Wealth Shock for the Middle Class: The End of the Chinese Dream of Real Estate Gold ### From Engine of Growth to Debt Trap: China's "Achilles Heel" Threatens the Global Economy ### "Only Survival Counts": Real Estate Tycoon Ronnie Chan Predicts China's Lost Decade ###

Price collapse in 61 metropolises: Why Beijing's rescue attempts in the real estate market are fizzling out

Once the unstoppable engine of global growth, now a systemic risk of historic proportions: The Chinese real estate sector is facing a watershed moment that goes far beyond cyclical fluctuations.

For a long time, acquiring real estate in China was considered the safest bet on the country's rise – a guarantee of prosperity on which almost three-quarters of Chinese private wealth is based. But this certainty has imploded. What we are currently experiencing is not merely a market correction, but a fundamental crisis, which Ronnie Chan, the legendary patriarch of Hang Lung Properties, aptly describes as a pure "fight for survival".

His warning carries significant weight: As early as 2007, Chan predicted the mass extinction of Chinese developers – a prophecy that has been brutally fulfilled with the disappearance of ninety percent of the market participants at that time. Today, he is once again staring into the abyss and sees not a quick comeback, but a "lost decade." The current data bears him out: In 61 of the 70 most important cities, prices are falling, investments are plummeting by double digits, and even massive government incentives are proving ineffective against a wall of buyer reluctance and loss of confidence.

This article analyzes the anatomy of a slow crash that is not only paralyzing China's domestic economy and impoverishing the middle class, but also, as an underestimated Achilles' heel, threatening the stability of the entire global economy. From desperate "trial housing" schemes to the ticking debt bomb of local governments, read why the era of the Chinese construction boom is finally over and what the consequences are for us all.

Suitable for:

• China | Beijing's dilemma between export boom and domestic market stagnation: Structural export dependence as a growth trap

When survival rhetoric becomes reality – Why Ronnie Chan's gloomy predictions will determine the future of the Chinese economy

The Chinese real estate market is at a turning point that extends far beyond construction. What was once considered a reliable engine of growth is increasingly transforming into a risk phenomenon that could threaten the economic stability not only of China, but of the entire global economy. The warning from Ronnie Chan, the venerable patriarch of Hong Kong's Hang Lung Properties, that survival is now the only thing that matters in the Chinese real estate sector, is not a dramatic understatement, but a sobering diagnosis of a sector in existential crisis.

Back in 2007, Chan delivered a prophetic speech to a gathering of real estate developers, warning that out of a hundred firms, only a few would survive at the top, while the majority would disintegrate or disappear entirely. Most considered this assessment a pessimistic exaggeration at the time. However, the following years revealed an even harsher reality than Chan's prediction: nine out of ten real estate companies have now vanished from the market or exist only in fragments. This historical experience lends particular weight to his current statements about the period of sheer survival. Chan speaks not from speculation, but from the perspective of a contemporary witness who has experienced the complete transformation of the sector multiple times.

Chan's current analysis goes beyond simply identifying market problems. His message aims at a fundamental shift in behavior, one that will be necessary for the survival of businesses. The motto is: secure capital, scrutinize expenses, minimize risks. These defensive strategies are the antithesis of the expansionary dynamics that characterized the boom of the past two decades. A generation of entrepreneurs who grew up during China's continuous rise and became accustomed to steady cash flow and profitable quick sales must suddenly adapt to crisis management. Chan anticipates a decade of stagnation, not a new upswing. This expectation of a lost decade is fundamentally different from the cyclical downturns the sector has weathered in the past.

Crisis indicator: The implosion of the value architecture

Key data from October 2025 paints a market picture that reinforces Chan's pessimistic assessment with hard facts. Prices for new apartments in China's seventy largest cities fell by 0.5 percent month-on-month. This was the sharpest monthly decline since October of the previous year. Year-on-year, the price drop was 2.2 percent. What gives these figures their true significance is their breadth: sixty-one of the seventy cities surveyed reported a price decline. Even more worrying is that not even prime locations in the traditionally stable metropolises of Beijing and Shanghai withstood the pressure. These Tier 1 cities, which typically absorb economic downturns better, also experienced noticeable price losses.

The government's attempt to create stability by easing financing conditions and providing other incentives has remained largely ineffective. The measures introduced in September—lowering mortgage rates, relaxing purchase restrictions, and reducing deposit requirements—demonstrate the full extent of the crisis of confidence in their ineffectiveness. If even massive regulatory interventions fail to stimulate demand, this suggests that market behavior is driven not only by financial constraints but also by fundamentally damaged consumer confidence.

The overall sector is experiencing contractions across all key indicators. From January to October 2025, investments in the real estate sector fell by almost 15 percent. Starts of construction for new projects declined by nearly 20 percent. The sales volume of new projects decreased by 7 percent. Particularly noteworthy is the increase of more than 5 percent in the stock of unsold properties. This last indicator signals a fundamental problem: not only is less construction taking place, but the ability to sell existing properties is also declining. A growing vacancy rate is the antithesis of what a functioning market with cyclical weaknesses would exhibit.

Regional divergences and the peripheralization of the market

The geography of the market collapse reveals a pattern of structural shifts. In northeastern China, a traditionally industrialized region, investment plummeted by almost a quarter. The east coast, the territory where the population and thus the strongest demand are concentrated, is experiencing a significant decline. The west of the country is somewhat more stable, but even this region is showing a downward trend. This geographical differentiation is not insignificant. It demonstrates that the collapse is not merely a cyclical weakness in the booming construction sector, but reflects structural shifts in population dynamics and regional economic strength.

The divergent development according to the Tier classification is particularly problematic. While the Tier 1 cities, the largest metropolises, are holding up relatively well, the Tier 2 and Tier 3 cities are showing a steadily accelerating decline. This is economically perverse, as these smaller cities account for a large portion of the housing demand for middle-class Chinese. If the market collapses precisely in these areas, it suggests that it is not only the wealthy who are buying in Beijing and Shanghai, but that the vast majority of the Chinese population is withdrawing from the real estate market.

The fate of existing properties is particularly telling. These properties play a central role in the wealth situation of private households. In October, 67 of the 70 largest cities reported lower prices than in the previous year. While the decline was slower in Tier 1 cities, the trend remains negative. In Tier 2 cities, the fall even intensified slightly. This development reveals a self-reinforcing system: Buyers are holding back, expecting prices to fall further. Developers are selling at a loss or halting sales altogether. Vacancies are increasing. This generates further downward pressure on prices. The market is slowing itself down, and there is no external stimulus to break this vicious cycle.

Extreme measures as an indicator of the market crisis

The measures developers are resorting to in order to generate any sales at all are indicators of extreme desperation. In Guangzhou and Shanghai, some developers are now offering trial periods where a small deposit is sufficient before an actual purchase or rental agreement is signed. Other projects are waiving management fees for a year. Still others are throwing in parking spaces for free. A single parking space can cost up to 500,000 yuan in some Chinese cities, the equivalent of almost 63,000 euros. Such offers represent substantial discounts that call into question the profitability of these projects.

An empirical study shows that 88 percent of major real estate projects in 21 urban centers resort to significant price reductions or incentivization. This rate is remarkable because it is not a marginal adjustment to weak demand, but rather an almost universal practice. While these practices may generate short-term revenue, they simultaneously demonstrate that the fundamental price of real estate is below what the original developers had calculated. This is a sign of massive capital destruction, which is reflected in the balance sheets of real estate companies.

Social media in China is documenting in real time how public sentiment is shifting. Users report growing concerns about the job market and stagnant incomes. Some draw comparisons to the 2008 US financial crisis. Others describe a feeling of a slowly rolling storm eroding consumer confidence. These non-quantifiable aspects of the market situation are just as important as the hard data, because they show that the crisis is not only affecting economic aggregates, but is also eroding the psychological foundation for consumption and investment.

Our China expertise in business development, sales and marketing - Image: Xpert.Digital

Industry focus: B2B, digitalization (from AI to XR), mechanical engineering, logistics, renewable energies and industry

More about it here:

• Xpert Business Hub

A topic hub with insights and expertise:

• Knowledge platform on the global and regional economy, innovation and industry-specific trends
• Collection of analyses, impulses and background information from our focus areas
• A place for expertise and information on current developments in business and technology
• Topic hub for companies that want to learn about markets, digitalization and industry innovations

The destruction of wealth and its consequences for consumption

Chan's observation about wealth effects is central to understanding the macroeconomic implications of this crisis. Roughly three-quarters of private wealth in China is tied up in real estate. This is a concentration common in developed countries, but at this level, it represents a structural risk. When prices fall, the wealth of entire households shrinks immediately. Consumption suffers instantly because many Chinese families base their spending on the value of their homes. This is not an unfounded psychological effect but is based on real financial conditions. Households whose net worth declines reduce their spending on non-essential goods and increase their savings rate.

Chinese consumer sentiment is already showing signs of this erosion. Consumer confidence has fallen significantly compared to historical averages. The Institute of International Finance and other research institutes document a significant decline in household optimism regarding their future income prospects. Surveys of over 260 cities revealed a particularly sharp drop in confidence in home purchases in smaller cities, with a month-on-month decrease of 2.9 percentage points. This is a further indicator that the crisis is migrating from the centers to the periphery, where it is having a more pronounced impact.

The problem lies in an asymmetric distribution of information. In Tier 1 cities, buyers can still rely on the narrative that these markets will adapt in the long term. In Tier 2 and Tier 3 cities, such an anchor no longer exists. There, the crisis becomes immediately visible, as neighboring projects are sold at lower prices. This exacerbates the decline and accelerates price deflation.

Suitable for:

• China and the Neijuan of systematic overinvestment: State capitalism as a growth accelerator and structural trap

Official optimism versus market reaction

The government's response so far exhibits the classic pattern of a crisis in which authorities take belated action. Attempts to create stability through easing restrictions have failed. Some banks and research firms anticipate a cautious stabilization by the end of 2026, but such forecasts are based more on confidence in the Chinese government's historical ability to smooth over crises than on a fundamental improvement in market dynamics.

The market itself, however, signals that the time for a rapid recovery is over. The breadth of the price declines suggests that these are not local phenomena or adjustments following overheating, but rather a structural shift. A market that is slowing itself down through growing inventories, declining housing starts, and stagnant consumer spending needs not only cyclical stimulus but also structural reforms.

The long-term perspective: A decade of adaptation

Chan's prediction of a decade without a new upward trend stands in direct contrast to the expectations built up during the boom. A generation of entrepreneurs and investors has become accustomed to the real estate sector not only generating profits, but doing so reliably and with high returns. This expectation is reflected in the structure of many corporate balance sheets, which rely on constant capital inflows and rolling debt financing. If this flow dries up, what follows is not consolidation, but collapse.

The structural challenges are not temporary. China's population is shrinking and aging simultaneously. The urbanization process is slowing, as the majority of the population is already concentrated in cities. The economic momentum of rural-to-urban migration, which for decades generated a constant flow of demand for housing, is waning. At the same time, a growing stock of unused or underutilized housing is accumulating in larger cities. This is an ominous sign, indicating a structural oversupply, not just a cyclical one.

Systemic Interconnections and the Debt Bomb

The importance of the real estate sector to the overall Chinese economy makes the current crisis a systemic threat. The sector accounts for more than 20 percent of China's GDP. Including indirect effects – such as construction material production, transportation, and financing – this figure rises to between 25 and 30 percent. This scale means that a collapse of the sector cannot be isolated but will affect the entire economy.

The entanglement with the banking system is particularly problematic. Mortgages represent a substantial portion of bank loans. While official figures still portray credit quality as relatively good, market participants know that this assessment is based on accounting mechanisms, not on actual default risks. When households can no longer service their mortgages because their property depreciates in value and they consequently lose their credit line, a credit problem arises not from explicit payment defaults, but from the transformation of theoretically normal loans into cases requiring restructuring.

Even more critical are the indirect debts. In recent years, local governments have relied heavily on loan financing through special vehicles because actual tax revenues have not kept pace with spending demands. A large portion of this debt was financed through land sales. If property developers buy less land because their margins collapse, land sales revenue for municipalities will decline. This, in turn, creates financing pressure on local governments, which must service their debt burdens.

The overall picture is of an interconnected system in which any shock in one component propagates through all the others. The central government can intervene in the short term with financial injections, but in the long run this model will lead to higher central debt.

Focus on the domestic economic strategy

The Chinese leadership has recognized that a worn-out export model needs new engines. The next five-year plan places great hopes on strengthening the domestic economy. This is a sound strategy, as reliance on exports is no longer sustainable in light of global trade conflicts. A focus on consumption also makes sense from a preventative standpoint, given the aging population and the need for sufficiently high domestic demand to ensure socio-political stability.

Suitable for:

• Beijing's new five-year plan and massive investment program: How China is challenging the global economic order

The problem lies in the timing and the dependence of this strategy on the real estate sector. The internal cycle only works when household demand picks up. As long as wealth continues to decline, households will save instead of consuming. The much-heralded surge in consumption has failed to materialize. Empirical data show that consumption rates are not rising, but rather remaining stable or even falling, while savings rates remain high.

If private demand fails to pick up, the government will be forced to resort to other measures. Direct payments to families are one possibility. So are programs similar to the existing scrappage schemes, which stimulate the purchase of new goods. Each of these measures entails further government debt. This creates a scenario in which the government must progressively replace private consumption with public transfers. While this is economically feasible for a limited time, it leads to greater fiscalization of the economy and longer-term problems with debt ratios.

Suitable for:

• Weak Chinese domestic market: China's economic power between regional dynamics and global challenges

The fiscal trap

The latest figures already demonstrate the severity of the situation. China has raised its official budget deficit for 2025 to four percent of GDP – the highest level since at least 2010. Official figures underestimate the true debt burden, as much of the debt is incurred by local authorities through special vehicles outside the core budget. By the end of 2024, total government debt amounted to 92.6 trillion yuan, including official government debt of 34.6 trillion yuan, legal local government debt of 47.5 trillion yuan, and hidden debt of 10.5 trillion yuan.

China's debt-to-GDP ratio was 68.7 percent, which appears low compared to other developed countries globally, as G20 nations average 118.2 percent. However, this comparison is misleading because China's debt ratio is growing faster and revenues are not keeping pace with expenditures. In fact, government revenues are stagnating in nominal terms, while spending on stabilization measures is increasing.

This creates a sustainability problem. If revenues don't grow while debts accumulate, there will eventually come a point where the interest payments themselves become a burden. Proactive reform would prevent this, but politically it's easier to react in the short term with new debt than to implement structural changes.

Confidence in future recovery

Banks and research firms that anticipate stabilization from the end of 2026 onward base this forecast on confidence that the Chinese government can still manage the problem. Historically, China has repeatedly overcome crises without major economic collapse. However, this comparability should be treated with caution, as the current situation includes several new elements: the demographic slowdown, urban saturation, and higher debt levels.

It is entirely possible that the data will show a market stabilizing at a new, lower level. However, this new equilibrium point could be significantly below historical prices. Stabilization after price declines of 20 or 30 percent from the peak is economically realistic, but it would mean a massive loss of wealth for households and businesses that had factored in higher prices.

Regional impacts

The Chinese real estate market has shaped the global landscape for decades. If China fails to leverage the real estate sector as a driver of growth and instead experiences it as a hindrance, the implications will be global. Commodity exporters who have profited from Chinese construction demand will feel the effects. Financial institutions worldwide that have speculated on Chinese real estate will face losses.

The effect, however, is not symmetrical. While China faces a crisis lasting several years, other countries will be less dramatically affected. This does not represent a gold rush, but rather a slowdown in global demand across several sectors.

The end of an era

Chan's 2007 warning that most real estate companies would not survive has proven accurate. His current message, that survival rather than growth is the goal, is likewise not a pessimistic distortion but a rational assessment. A market with falling prices in 61 out of 70 cities, with growing inventories, desperate discounts, collapsing housing starts, and stagnant consumer confidence is indeed in a survival situation.

This crisis will not destroy the Chinese economy, but it will significantly reshape it. Households will not reduce their savings rates, but rather increase them. Companies will invest less. The state will face a greater fiscal burden. The structure of the economy will have to shift, away from construction-centered growth and toward consumption and innovation. This is a necessary rebalancing, but the years of adjustment will take a decade. During this time, the real estate sector will not be an engine of growth, but rather a problem area that needs to be managed. The consequences of this transformation will not only shape China, but will also influence global economic dynamics in the coming decade.

☑️ Our business language is English or German

☑️ NEW: Correspondence in your national language!

Konrad Wolfenstein

I would be happy to serve you and my team as a personal advisor.

You can contact me by filling out the contact form or simply call me on +49 89 89 674 804 (Munich) . My email address is: wolfenstein ∂ xpert.digital

I'm looking forward to our joint project.

☑️ SME support in strategy, consulting, planning and implementation

☑️ Creation or realignment of the digital strategy and digitalization

☑️ Expansion and optimization of international sales processes

☑️ Global & Digital B2B trading platforms

☑️ Pioneer Business Development / Marketing / PR / Trade Fairs

Benefit from Xpert.Digital's extensive, fivefold expertise in a comprehensive service package | R&D, XR, PR & Digital Visibility Optimization - Image: Xpert.Digital

Xpert.Digital has in-depth knowledge of various industries. This allows us to develop tailor-made strategies that are tailored precisely to the requirements and challenges of your specific market segment. By continually analyzing market trends and following industry developments, we can act with foresight and offer innovative solutions. Through the combination of experience and knowledge, we generate added value and give our customers a decisive competitive advantage.

More about it here:

• Use the 5x expertise of Xpert.Digital in one package - starting at just €500/month