“Ghost towns” became the face of China after housing sector collapse

But under the iron rule of the Communist Party, the sector is getting cleaned up and recovery is on the cards.

By P.K.Balachandran

Colombo, March 20:

Since the COVID-19 pandemic, China’s housing sector has been mired in an unprecedented crisis. A bold experiment in market-driven economics unravelled, leaving behind a trail of unsold apartments, defaulting developers, and cheated homebuyers.

Yet, thanks to the country’s centralized governance and stringent interventions, the sector is showing signs of recovery—albeit a slow and incomplete one. Under President Xi Jinping’s leadership, the government has wielded its authority to stabilize the market, but deep-rooted challenges make a full restoration elusive.

Grim Landscape

The numbers paint a stark picture. As of March 2025, approximately 60 million unsold apartments, worth US$4.1 trillion, sit vacant across China. Another 10 million pre-sold but unfinished units have left buyers—who often paid upfront with mortgages—stranded without homes.

New housing starts have cratered, dropping over 60% from pre-pandemic levels. Home prices slid 9.8% in the first four months of 2024 compared to the prior year. Industry titans like Evergrande and Country Garden, saddled with debts of US$300 billion and US$205 billion respectively, have collapsed—Evergrande was ordered to liquidate in January 2024.

Three Red Lines

China’s centralized system has been both a blessing and a burden. In 2020, Xi Jinping introduced the “three red lines” policy, capping developers’ debt-to-cash, debt-to-equity, and debt-to-assets ratios to curb reckless borrowing. The mantra “Houses are for living, not for speculation” became a guiding principle.

Financing dried up for overleveraged firms, and bailouts were off the table, triggering a cash crunch that felled many developers. By May 2024, the government rolled out a US$41.5 billion relending facility, enabling state-owned enterprises and local governments to buy unsold homes for affordable resale. Mortgage down payments and interest rates were slashed, and banks were urged to extend credit to viable developers—while insolvent ones were left to fail.

Officials claimed by October 2024 that the sector had stabilized, but the reality is less rosy. The crisis has been mitigated, not resolved.

A shrinking population, slowing urbanization, and a declining workforce—projected to shrink further in the 2030s due to the One-Child Policy—continue to dampen demand.

In 2024, China’s population fell by 1.39 million to 1.408 billion, with deaths outpacing births for the third straight year, according to the National Bureau of Statistics. The birth rate hit a historic low of 6.2 per 1,000 inhabitants in 2023, while life expectancy climbs toward 81 by 2035—up from under 70 in the 1990s.

Fewer marriages (down to 7.6 million in 2021) and a saturated market—96% of households already own homes—further erode the need for new housing.

Roots of the Bubble

The crisis traces back to China’s pivot from orthodox communism in the mid-1990s. Under Xi’s “Socialism with Chinese characteristics,” a controlled capitalist system unleashed prosperity, lifting 800 million out of poverty.

Housing was privatized in 1997 to spur GDP growth, with the central government leasing land to local authorities, who then subleased it to developers. Local governments, constrained by tax remittance rules and borrowing bans, relied heavily on land sales, which soon accounted for up to 40% of their revenue. Housing swelled to 30% of China’s GDP.

Cultural Factors

Chinese cultural factors fuelled the boom. Homeownership is a cornerstone of Chinese identity—renting is frowned upon, and owning a home is often a prerequisite for marriage. Demand soared, residential land prices quintupled, and developers thrived.

But unchecked growth bred excess. Many firms misused funds, veering from their core business and leaving customers in the lurch. By the early 2020s, most of China’s top 100 developers were drowning in debt.

Signs of Hope

China’s authoritarian grip offers a lifeline. The government can enact and enforce policies with unmatched speed. In 2024, measures like lower mortgage rates and land repurchasing began to thaw the market.

Culturally, the preference for ownership endures—young couples and their families often pool resources to buy homes despite tighter conditions. Rural-to-urban migration has slowed, stranding 200 million in underdeveloped areas, but the state’s focus on rural growth could unlock new demand.

Even China’s infamous “ghost cities”—clusters of empty apartments—are stirring to life. Economist Keyu Jin notes that many, particularly in less-developed regions like Inner Mongolia, are finding occupants as development spreads. Still, the sector’s recovery remains uneven.

Demographic Headwinds

A declining population poses a long-term threat. Reuters predicts that a shrinking workforce and consumer base, coupled with rising elderly care costs, will strain China’s economy. To counter this, the government launched the “Three-Children Policy” in 2021, offering financial incentives and organizing mass dating events.

Yet, the fertility rate languishes at 1.7—well below the replacement rate of 2.1—and these efforts have yet to yield significant results.

China’s housing crisis is a cautionary tale of market exuberance clashing with demographic reality. The government’s iron hand has stanched the bleeding, but the wounds run deep. With a strong central authority and a culture that prizes homeownership, China may yet rebuild its housing sector.

For now, though, the experiment in controlled capitalism remains a work in progress—its failures as instructive as its successes.

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