With the founder of China's property developer Evergrande being sentenced to life in prison, legal responsibility has been determined for the real estate crisis that began in earnest with Evergrande's default in 2021. But even six years after the Evergrande fiasco, China's property market has yet to enter a recovery phase. Since the start of this year, property development investment and sales of dwellings have both fallen by double digits, and home prices continue to decline. While the Chinese government is nurturing advanced manufacturing as a new growth engine, analysts say it will take more time to fill the economic gap left by the property slump.
According to China's state-run Xinhua News Agency, the Shenzhen Intermediate People's Court on the 20th sentenced Xu Jiayin to life in prison and confiscated all of his assets. China Evergrande Group and its affiliate Evergrande Real Estate were fined 8.82 billion yuan (about 1.8128 trillion won) and 7 billion yuan (about 1.442 trillion won), respectively. Fifty-six people connected to the case, including Xu Jiayin's two sons, received prison sentences of up to 18 years along with fines or asset confiscations.
The Chinese court found that Xu Jiayin and China Evergrande Group forged financial data to inflate the company's asset and conceal liability, and committed crimes including illegal fundraising, securities fraud, false disclosures, bribery, and embezzlement.
Xu Jiayin founded Evergrande in 1996 and built it into one of China's largest private property developers. In 2017, his wealth swelled to $45.3 billion (about 63 trillion won), making him Asia's richest person. Evergrande expanded its business on the back of aggressive borrowing and presales of dwellings. But when the Chinese government introduced regulations in 2020 to curb excessive borrowing by developers, its financing was hit. As a result, Evergrande fell into default in 2021, and liquidity strains spread to other major private developers, ushering in a full-blown crisis in China's property market. Evergrande's total liability reached 2.39 trillion yuan (about 492 trillion won) as of the first half of 2023, the period covered by its last earnings report.
◇ Property slump enters its sixth year
It has been six years since the Evergrande crisis escalated, but clear signs of recovery in China's property market are absent. According to China's National Bureau of Statistics, property development investment totaled 4.3009 trillion yuan (about 887.5767 trillion won) in January–July this year, down 19.2% from a year earlier. Investment in dwellings also fell 19.1%. New construction starts decreased 24.0%, and completions fell 23.2%.
Sales are also weak. During the same period, the floor area of new commercial dwellings sold fell 12.7% year over year, and the value of sales dropped 13.2%. Developers' fundraising declined 20.3%, and personal mortgage loan lending fell 23.5%. Demand for purchasing dwellings and developers' investment in new projects have contracted at the same time.
As a result, prices of dwellings continue to fall. Reuters' analysis of data for 70 major cities from China's National Bureau of Statistics showed that in July, new-home prices fell 0.1% from the previous month and were down 3.2% from a year earlier. Only 17 of the 70 cities saw prices rise from the previous month. In particular, housing markets in smaller regional cities are undergoing a deeper correction than in the past. Reuters said that in some inland small cities in China, prices of existing homes have fallen about 25% compared with 2020.
With the prolonged crisis in the property market—once a key driver of China's economic growth—China is increasingly relying on exports. Since 2019, China's trade surplus has more than doubled, fueling trade conflicts with major partners such as the European Union (EU) and the United States. Reuters said, "Market experts judge there is no clear exit from China's real estate crisis," adding, "China's property problem is structural, and there is not much that can be done to resolve it."
◇ Private developers in crisis… authorities race to contain fallout
The Evergrande crisis has spread to other property developers. Country Garden Holdings Company Limited, a former rival of Evergrande, declared a dollar-bond default in 2023 and is undergoing debt reorganization, while Vanke, one of China's largest developers, pursued extensions of bond maturities due to liquidity problems and replaced its management.
The traditional business model of property developers that relied on excessive borrowing has also hit a wall. According to foreign media analyses, the conventional growth cycle for Chinese developers including Evergrande was a repeat of "borrowing → land acquisition → presales of dwellings → additional borrowing." The structure allowed profit maximization while dwelling prices and sales were rising, but when sales slow, liability balloons.
In response, the Chinese government is focusing its policies not on restoring the property market to its past high-growth trajectory, but on stabilizing the market by clearing unfinished dwellings and distressed developers while easing homebuying curbs, lowering mortgage loan lending rate, and purchasing inventory dwellings.
At the same time, it has designated robots and semiconductors as strategic industries and is pouring in various government support, but Reuters assessed that "the scale of these new industries is still not sufficient to offset the economic burden from the property slump."
Market forecasts are mixed. Sam Radwan, CEO of the real estate consultancy Enhance International, estimated it will take about 18 months to clear China's current inventory of dwellings and said, "For the housing market's supply and demand to find balance at 2025 levels, home prices need to fall at least 40% further, and the process could take 10 years."
By contrast, Christopher Beddor, deputy director at Gavekal Dragonomics, said the worst has passed and analyzed that "going forward, a gradual price adjustment and inventory reduction are more likely than a sharp further decline."