In 2023, the average price of real estate in China was approximately ****** yuan per square meter, representing a decrease from the previous year. Rising prices in the real estate market Since the 1998 housing reform, property prices in China have been rising continuously. Housing in the country is now often unaffordable, especially considering the modest per capita income of Chinese households. Shanghai and Beijing even have some of the most competitive real estate markets in the world. The rapid growth in housing prices has increased wealth among homeowners, while it also led to a culture of speculation among buyers and real estate developers. Housing was treated as investments, with owners expecting the prices to grow further every year. Risk factors The expectation of a steadily growing real estate market has created a property bubble and a potential debt crisis. As Chinese real estate giants, such as China Evergrande and Country Garden, operate by continuously acquiring land plots and initiating new projects, which often require substantial loans and investments, a slowdown in property demands or a decline in home prices can significantly affect the financial situation of these companies, putting China’s banks in a vulnerable position. In addition, due to a lack of regulations and monetary constraints, the long-term maintenance issues of high-rise apartments are also a concern to the sustainable development of China’s cities.

In 2024, real estate developers in China completed ****** million square meters of floor space, representing a significant drop of almost ** percent from the previous year. Housing completion figures in China have generally decreased over the last decade, owing to structural challenges in the real estate industry. The ups and downs of the Chinese real estate market Following the marketization of the housing sector in the late *****, China's real estate industry has enjoyed more than two decades of prosperity. The output value of the sector multiplied several times, with home prices rising sharply across the country and some properties in urban centers such as Beijing and Shanghai being among the most expensive in the world. While being a pillar industry in the country’s economy, the real estate sector has also stimulated the development of many related industries, such as construction and financial services. The property bubble and unfinished buildings The former expansion of the housing market had created a considerable bubble in the sector, which finally burst during the COVID-19 pandemic. Many apartments, especially the tower blocks in small or medium-sized cities and towns remained unsold or left unoccupied, leading to financial turmoil for real estate developers. The failure of major market players such as China Evergrande and Country Garden resulted in more than a million unfinished apartments in China.

Evaluation index system for the real estate bubble in China.

The samples in this paper come from panel data of 35 large and medium-sized cities in China from 1999 to 2019(In order to avoid the impact of the COVID-19 Pandemic on the conclusions of this analysis, we use the data before the outbreak of the epidemic for empirical testing). Here, the variables adopted for assessing the housing bubble include price level, resident income, household population, the average wage of staff and land supply. Apart from the housing bubble index which is obtained via assessment, all the other basic data come from official statistics, including the Wind Economic Database, website of the People’s Bank of China, and National Bureau of Statistics website.

On the 2025 Fortune China 500 ranking for real estate companies, China’s leading real estate developer Poly Real Estate ranked first with a total revenue of ************ U.S. dollars, followed by China Vanke and Country Garden. Real estate market in ChinaIn the last 20 years, China’s real estate market has experienced its most prosperous development. Land purchase has also become an important source of financial revenue for many local governments. The housing price increased so rapidly, especially in larger cities, that the government had to take measures to restrict investment. With the slowdown of China’s economic development and gradually saturated market, people are also afraid of the burst of the real estate bubble. While the real estate price in smaller cities tended to stay stable or even decrease, there is still growing potential for real estate prices in larger cities, especially the first-tier cities. China’s consumers are increasingly interested in the high-quality real estate products built by leading real estate developers. Leading real estate developers in ChinaCompared to the ranking in 2021, there were ***** new members entering the leading ten real estate developer club in 2022. The larger developers became stronger as they had advantages in land acquisitions, financing, marketing and pricing power which is difficult for smaller developers to catch up with. Thus, consolidation is also very common among China’s real estate developers. In 2022, *** real estate giants disappeared from the Fortune 500 ranking list, Evergrande and Sunac. Affected by the changing real estate market, they were facing cash flow problems and were affected heavily by the debt crisis.

Estimated bubble sizes of residential commodity buildings in China’s major 35 cities (%).

In 2024, the expanse of newly started real estate construction in China amounted to less than *********** square meters. This was again a significant decline of more than ** percent from the previous year, despite the initial expectation of recovery after the end of COVID-19 control measures. The construction boom The housing market reforms initiated in 1998 unleashed a two-decade-long golden era for China's real estate and construction sectors. With the dramatic rise in home prices and nationwide urban renewal projects, a significant number of residential properties, mainly consisting of high-rise complexes, were erected across China for sale to its growing middle-class population. By 2013, the annual expanse of newly started construction projects exceeded *****illion square meters. Despite a decline in the years that followed, with the government's stimulus policies, constructions reached an all-time high of ********************* square meters by 2019, before the start of the COVID-19 pandemic. Increased risks in the real estate sector The continuous expansion of the real estate industry has resulted in a substantial oversupply in the market. This is particularly noticeable in smaller cities and towns in the provinces. Many property developers, including giants such as Evergrande and Country Garden, found themselves in financial hardship owing to the large number of unsaleable or vacant homes they had built. This has resulted in more than *********** unfinished homes across China, exposing homebuyers and their banks to significant financial risks. Moreover, due to the slowdown of China's economy, the outstanding mortgages accumulated over the last two decades will also become a long-term concern for the country's financial institutions and industries.

Considering the notable influence of traditional Confucian culture on China’s housing market, this study introduces an innovative index to quantify the magnitude of the real estate bubble within China, employing a familial generational iterative model. Utilizing rent-buy policy as a conceptual framework, our research constructs a difference-in-differences model to investigate the impact of macroeconomic policies on the housing bubble phenomenon. Empirical observations from 2022 reveal pronounced bubble dynamics in first and second-tier cities, while housing prices in third and fourth-tier cities, alongside select fifth-tier cities, exhibit a declining trend. On a national scale, apart from minor affordability observed during 2005–2007, no significant affordability was identified in other years, with the housing price bubble index demonstrating a downward trajectory from 2020 to 2022. Furthermore, the implementation of the rent-buy policy that equality the rights of renter and owner has directly influenced the housing market, notably mitigating the overall escalation of housing prices. Additional analysis indicates that the rent-and-buy policy has been more successful in curbing price hikes in newly constructed and smaller-sized housing units compared to second-hand and larger-scale properties.

Estimated bubble sizes of commercial commodity buildings in China’s major 35 cities (%).

Estimated bubble sizes in China’s 30 provinces/municipalities (%).

Portugal, Canada, and the United States were the countries with the highest house price to income ratio in 2024. In all three countries, the index exceeded 130 index points, while the average for all OECD countries stood at 116.2 index points. The index measures the development of housing affordability and is calculated by dividing nominal house price by nominal disposable income per head, with 2015 set as a base year when the index amounted to 100. An index value of 120, for example, would mean that house price growth has outpaced income growth by 20 percent since 2015. How have house prices worldwide changed since the COVID-19 pandemic? House prices started to rise gradually after the global financial crisis (2007–2008), but this trend accelerated with the pandemic. The countries with advanced economies, which usually have mature housing markets, experienced stronger growth than countries with emerging economies. Real house price growth (accounting for inflation) peaked in 2022 and has since lost some of the gain. Although, many countries experienced a decline in house prices, the global house price index shows that property prices in 2023 were still substantially higher than before COVID-19. Renting vs. buying In the past, house prices have grown faster than rents. However, the home affordability has been declining notably, with a direct impact on rental prices. As people struggle to buy a property of their own, they often turn to rental accommodation. This has resulted in a growing demand for rental apartments and soaring rental prices.

In 2022, the price for new residential property in Shanghai's inner ring dropped by more than ***** yuan per square meter, to ******* yuan per square meter. Although the local authorities introduced policies to stabilize the market, the real estate market in Shanghai’s central districts remained under downward pressure, similar to those experienced by other major cities in China. The most competitive real estate market in the country Home prices in Shanghai are among the most expensive globally. The area within the city's inner ring road is certainly one of the most competitive real estate markets in all of China, with property prices nearly *********** higher than those outside the outer ring road. Rising prices are far beyond the reach of ordinary residents, and the few who can afford to buy often have to take out substantial mortgages for their homes, resulting in a high proportion of real estate in their personal assets. Challenges facing China’s real estate sector The high level of indebtedness of the Chinese people and the bubbles in the country's real estate sector have become one of the major risks to China's economy. While developers expanded through continuous borrowing and the sale of off-plan properties to homebuyers, the market saw a significant excess of housing supply in most regions. There have also been instances in recent years where developers have had difficulties in completing construction projects or in repaying their loans or bonds. Addressing the risks in China's real estate sector, particularly in companies such as the Evergrande Group and Country Garden, has become an urgent task to ensure China's economic stability and prosperity.

In 2023, the average price of residential housing sold in Shanghai, the most important economic hub of China, reaching ****** yuan per square meter, making the city one of the least affordable cities in the country. The housing market boom Since the housing reform in the 1990s, the prices of homes in Shanghai have increased almost every year, thanks to the growth of the city’s population and, thus, the high demands in the housing market. The high property prices gradually became out of reach for most residents, who earn an annual per capita income of only ******* yuan in 2023. Residential properties in the city center were especially unaffordable, as newly built homes located within Shanghai's inner ring road had an average price of ******* yuan in 2023, ********* more expensive than their counterparts outside the outer ring road. Risks and interventions The high price not only made living in the city expensive for its residents, but also posed a grave risk to China’s financial system. In the first 20 years of this century, the total value of personal housing mortgage loans in Shanghai increased by ******************, and defaults of any moderate scale can be consequential. Therefore, both the central and the municipal authorities had been attempting to curb the continuous rise of property costs in Shanghai, through the increase in the supply of housing stocks and policies limiting speculations in the market. However, most measures were not as effective as anticipated.

Unit root test results of each variable.

Moderate rising of house prices are beneficial to the economic development. However, over high house prices worsen the economic distortions and thus hinder the development of the real economy. We use the stochastic frontier models to calculate the fundamental value in the housing in Chinese large and medium cities, and then obtain indexes which could measure the house prices’ deviations from the fundamental value. With the macroeconomic data in the city-level, this paper empirically investigates the effects of the house prices’ deviations on macro-economic variables like consumption, investment and output. The study reveals that the housing bubble exists in most Chinese cities, and first-tier cities fare the worst. House prices over the fundamental value, which could increase the scale of real estate investment, bring adverse impacts on GDP, as it causes declining civilian consumption and discourages real economy’s investment and production. The encouragement and the discouragement on macroeconomy caused by house prices’ deviation from its basic value take turns to play a key role in the process of China’ eco-nomic growth. In the early stage of China’s economic growth, the encouragement effect predominates. As urbanization and industrialization gradually upgrade to a higher level, the discouragement effect takes charge.

In 2024, the construction industry in China generated an output of over *********** yuan, representing an increase of more than ***percent from a decade ago. Stimulus from the real estate sector and government-funded projects With the liberalization of the housing market in the late 1990s, China's real estate industry enjoyed a 20-year boom since the early 2000s. Amidst the surge in housing prices, local governments across China received considerable non-tax revenue from land leases and in turn, invested the funds in infrastructure development projects. This led to the continuous prosperity of the country’s construction industry. A vital segment of China’s economy Thanks to the stimulus from housing developments and infrastructure projects, the construction industry is now one of the pillar industries of China's economy, accounting for around ***** percent of the country's GDP. However, with the recent difficulties experienced by many major real estate enterprises, and the stagnation in infrastructure construction owing to local governments' debt situation, China's construction sector faces a somewhat uncertain future.

Estimation results in China.

Selection of the optimal lag order.

Comparison of the effectiveness of measurement models.

Impacts of housing price’s deviation from the basic price on economic growth.