By Bloomberg News Once one of the country’s biggest growth drivers, China’s property market has been in a downward spiral for five years. Real estate values continue to plummet, households in financial distress are being forced to sell properties, and apartment developers that racked up enormous debt on speculative projects are on the brink of collapse.

There was some optimism that government measures to end the crisis had been working to reinvigorate the market, butgovernment-linked developer China Vanke Co. reported a record 89 billion yuan ($13 billion) annual loss last year, bringing the company’s combined loss in the past two fiscal years to more than 130 billion yuan andshowing just how deep the problems run. That’s after the nation’s property sector hit a grim milestone in August 2025when property giant China Evergrande Group delisted from the Hong Kong stock exchange, making the shares effectively worthless.

China has now announced further measures,includingmortgage subsidies aimed at reducing the financial burden on lower-income households, as well as looser homebuying rules for non-residents in major cities. The slump has heightened concerns that further weakening could destabilize the country’s financial system. It has already forced the country’s banks to confront a thorny issue: sinking real estate values are pushing millions of mortgages underwater, increasing the risk of losses for lenders.

In 1998, China created a nationwide housing market after tightly restricting private sales for decades. Back then, only a third of its people lived in towns and cities. That’s risen to two-thirds, with the urban population expanding by 480 million. The exodus from the countryside represented a vast commercial opportunity for construction firms and developers.

Money flooded into real estate as the emerging middle class leapt upon what was one of the few safe investments available, pushing home prices up sixfold over the 15 years ending in 2022. Local and regional authorities, which rely on sales of public land for a chunk of their revenue, encouraged the development boom. At its peak, the sector directly and indirectly accounted for about a quarter of domestic output and almost 80% of household assets. Estimates vary, but counting new and existing homes, plus inventory, the sector was worth about $52 trillion in 2019 — about twice the size of the US real estate market.

The property craze was powered by debt as builders rushed to satisfy expected future demand. The boom encouraged speculative buying, with new homes pre-sold by developers who turned increasingly to foreign investors for funds. Opaque liabilities made it hard to assess credit risks. The speculation led to astronomical prices, with homes in boom cities such as Shenzhen becoming less affordable relative to local incomes than those in London or New York. In response, the government moved in 2020 to reduce the risk of a bubble and temper the inequality that unaffordable housing can create.

Anxious to rein in the industry’s debts and fearful that serial defaults could ravage China’s financial system, officials began to squeeze new financing for developers and asked banks to slow the pace of mortgage lending. The government imposed stringent rules on debt ratios and cash holdings for developers that were called the “three red lines” by state-run media. The measures sparked a cash crunch for developers that was exacerbated by the impact of aggressive measures to contain Covid-19, such as the suspension of construction sites.

Many developers were unable to adhere to the new rules as their finances were already stretched. In 2021, Evergrande defaulted on more than $300 billion, triggering the beginning of China’s property crisis. Two more property giants defaulted — Sunac China Holdings Ltd in 2022 and Country Garden Holdings Co. in 2023.

Evergrande’s downfall was by far the biggest corporate collapse in China’s property crisis. Founded in 1996 by Hui Ka Yan, Evergrande’s rapid expansion was fueled from the outset by heavy borrowing. It became the most indebted borrower among its peers, with total liabilities reaching about $360 billion at the end of 2021.

For a time, it was the country’s biggest developer by contracted sales and was worth more than $50 billion at its peak in 2017. Founder and chairman Hui became Asia’s second-richest person. Over the years, the company also invested in the electric vehicle industry and bought a local football club.

But when Beijing started to crack down on the property sector in 2020, the new measures put a cap on the developer’s borrowing capacity, effectively cutting off its lifeline to credit markets. Following failed restructuring attempts, Evergrande was given a winding-up order in Hong Kong in 2024. After a long trading suspension, the Guangzhou-based company was delisted the following year.

On Aug. 20 this year, Hui was sentenced to life in prison after he pleaded guilty to charges including fundraising fraud and bribery. The court sentenced another 56 people with charges related to Evergrande, including Hui’s sons Xu Zhijian and Xu Tenghe, and his former companies were fined 15.82 billion yuan ($2.4 billion).

After years of insatiable demand from buyers, the market ground to a halt. In addition to the government’s lending restrictions, the economic shock of Covid lockdowns reinforced a culture of frugality, and a deteriorating job market meant people were suddenly facing layoffs and salary cuts.

Property prices began to fall in late 2021. As of July, used homes in top-tier cities had lost more than a third of their value, while those in smaller cities had fallen even further.

With household debtnear a record high of 137% of disposable income per capita at the end of 2025,homeowners are under increasing financial pressure. Some homeowners are being forced to sell their properties at a discount, adding to downward pressure on prices.

The weakness has continued to shake more cash-strapped developers. Mid-sized builder China South City Holdings Ltd. was ordered to liquidate by Hong Kong’s High Court in August 2025 after a default more than two years ago. Hong Kong’s courts have issued at least nine wind-up orders for Chinese developers since the crisis began in 2021.

In 2022 authorities realized the rules to rein in the market had gone too far. Aiming to avoid a “Lehman moment” — when the failure of the US bank in 2008 sent shockwaves through global markets — the government unveiled measures centered on boosting equity, bond and loan financing for developers to alleviate the liquidity crunch.

Developers were allowed to access more money from apartment pre-sales, the industry’s biggest source of funds, and 200 billion yuan ($27 billion) was advanced as special loans to complete stalled housing projects. The government tweaked financial rules, allowing the central bank to increase support for distressed developers and instructing banks to ensure growth in both residential mortgages and loans to developers in some areas.

Since mid-2024, the government has cut borrowing costs on existing mortgages, relaxed buying curbs in big cities and lowered taxes on home purchases. It also trimmed purchasing costs for people seeking to upgrade dwellings in some big cities. In August 2025, Beijing authorities removed a cap to allow eligible families to buy an unlimited number of homes in outer suburban areas, andShanghai and Shenzhen soon followed.

Despite these measures, the property market continues to deteriorate. In late September, the government announced further efforts to support the market, although the measures were narrower and smaller than expected. They include mortgage-interest subsidies for first-home buyers of properties that must be both less than 120 square meters (1,292 square feet) and cost no more than 1.5 million yuan. The subsidy is equivalent to an annualized rate of 1 percentage point of the mortgage principal for up to five years.

Government officials are clearly eager to bring the property crisis under control. They aim to limit the damage to developers and stem the bleeding to other vulnerable parts of the economy. This includes banks with heavy exposure to real estate; the construction industry, which employs 51 million people; and local governments that rely on land sales to developers to sustain their public spending.

Chinese banks’ bad debt — loans they no longer expect to recover — hit a record 3.7 trillion yuan at the end of June. Fitch Ratings has warned the situation could deteriorate further in 2026 as households struggle to repay mortgages and other loans.

UBS Group AG estimates that 3.3 million homes in Chinacould be underwater by 2027, meaning they would be worth less than the debt secured against them. In other words, selling those properties would not raise enough to fully repay their outstanding mortgages.UBS estimates as much as 232 billion yuan of mortgages and business loans collateralized by those homes could be at risk. While that’s relatively small compared with China’s overall volume of outstanding loans, the scale of underwater loans would be unprecedented in China’s history.

A prolonged property slump could also deepen deflationary pressures. Former finance minister Lou Jiwei recently warned that households’ worsening outlook — driven by falling home values — will affect consumption levels and intensify price declines. According to economists at Morgan Stanley and Beijing-based think tank CF40, the property sector’s drag on inflation could even be greater than official data suggest.