The property market is in freefall. Should the world be worried?

The property sector in the Chinese economy has always been a puzzle.

- Keyu Jin

At its peak, it accounted for a quarter of the nation’s economic output , broadly measured. And it sees people in Beijing and Shanghai paying house prices similar to those in San Francisco and New York, despite having just a quarter the income of US buyers.

Now many believe we are about to see a violent contraction of the property market in China. The government wants to intervene to rei n in what it calls the “three high” problem: high prices, high debt and high financialisation. The approach has been dramatic. Financing for property developers has tanked. Earlier this year, property sales declined by as much as 20-30% , in-progress developments are not being completed and people have taken to the streets, banding together to stop mortgage payments on such projects in protest.

Many of China’s largest property developers are failing to repay their debts . Even the survivors are in a liquidity crisis. The risk is that the property market crisis will drag the economy down , hitting suppliers, small- and medium-sized construction companies , as well as household consumption. And dangerously, the banking system has at least a quarter of its assets in property.