China built the largest property boom in history — at its peak, real estate represented 25-30% of GDP and 60-70% of household wealth. The model that powered three decades of urbanisation is now breaking under its own weight. Here is the full story of how it was built, why it worked for so long, and
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Unlike Western economies that grew through technology or consumer spending, China prioritized infrastructure and housing. Property development became the primary engine of growth, accounting for nearly 30% of the country’s GDP at its peak. This model was fueled by the government’s desire to modernize cities quickly, creating an environment where real estate was seen as the safest and most reliable place for families to store their wealth.
In China, developers like Evergrande were allowed to sell apartments to buyers before the buildings were even constructed. Developers used these cash deposits to fund the start of new projects, essentially using money from new buyers to finish older ones. This system created a cycle of perpetual construction, but it also made developers extremely vulnerable to slowdowns. As long as housing prices kept rising, the system appeared stable. However, when the market stalled, the entire house of cards began to wobble.
The stock market was historically volatile, and capital controls made it difficult to invest money abroad. Consequently, people poured their life savings into property, often buying multiple apartments as speculative assets. Developers, encouraged by easy access to loans from state-owned banks, built massive new residential districts. These became known as 'ghost cities'—modern, high-rise urban centers with few residents, built purely on the expectation that property values would rise forever.
The goal was to reduce systemic risk and prevent a housing crash. While intended to stabilize the market, the policy abruptly cut off the supply of credit to highly leveraged developers. Companies that were already struggling to complete projects suddenly found they could not borrow money to continue, leading to stalled construction sites, missed interest payments, and widespread fear among investors.
Because real estate represents roughly 70% of household wealth, falling property prices have had a cooling effect on consumer confidence. When people feel poorer because their primary asset is losing value, they spend less money, which slows down the broader economy. The challenge for policymakers now is to manage this transition away from a property-led economy without causing a sudden or severe collapse in living standards. It is a delicate balancing act that highlights the risks of building an economy on the foundation of speculative growth.