Evergrande's unravelling is still commanding global attention, but its troubles are part of a much bigger problem.
For weeks, the ailing Chinese real estate conglomerate has made headlines as investors wait to see what will happen to its enormous mountain of debt. As the slow-moving crisis unfolds, analysts are pointing to a deeper underlying issue: China's property market is cooling off after years of oversupply.
The warning signs have been flashing for some time. Prior to Evergrande's meltdown, tens of millions of apartments were thought to be sitting empty across the country. In recent years, the problem has only gotten worse.
Mark Williams, chief Asia economist at Capital Economics, estimates that China still has about 30 million unsold properties, which could house 80 million people. That's nearly the entire population of Germany.
On top of that, about 100 million properties have likely been bought but not occupied, which could accommodate roughly 260 million people, according to Capital Economics estimates. Such projects have attracted scrutiny for years, and even been dubbed China's "ghost towns."
Here's a look at some of those projects, and how the problem first originated.
Real estate and related sectors are a massive part of China's economy, accounting for as much as 30 per cent of GDP. The proportion of economic output related to construction and adjacent activities is "far higher than in other major economies," according to Williams.
For decades, that has helped the country sustain rapid economic growth.
But for years, critics have questioned whether that engine of growth was creating a ticking time bomb for the world's second largest economy. That's in part because of the massive debt many developers took on to finance their projects.
As China's most indebted developer, Evergrande has become the poster child of unsustainable growth, with more than A$400 billion worth of liabilities.
However, "Evergrande is not the only one struggling," noted Christina Zhu, an economist at Moody's Analytics. Over the last few days, a slew of other developers have disclosed their own cash flow issues, asking lenders for more time to repay them or warning of potential defaults.
In a recent report, Zhu wrote that 12 Chinese real estate firms defaulted on bond payments totalling about 19.2 billion yuan (nearly $4 billion) in the first half of the year.
"This accounted for near 20 per cent of total corporate bond defaults in the first six months of the year, the highest across all sectors" in mainland China, she added.
The pandemic brought activity to a temporary standstill. But construction later roared back to life as China reopened, and the country's property market enjoyed a brief rebound.
Since then, however, the market has sputtered again. And there's no sign of immediate relief.
Over the last few months, "measures of price growth, housing [construction] starts and sales" have tapered off considerably, Zhu noted. In August, property sales, as measured by floor space sold, dropped 18 per cent compared to the same time the previous year, she added.
That same month, new home prices edged up 3.5 per cent "from a year earlier, the smallest growth since the property market rebounded from the pandemic fallout in June 2020," wrote Zhu.
"Residential property demand in China is entering an era of sustained decline," Williams wrote in a research note. He called this "the root of Evergrande's troubles — and those of other highly-leveraged developers."
Then there is the problem of unfinished projects, even if there is demand. The majority of new properties in China — about 90 per cent — are sold before being completed, meaning that any setbacks for home builders could directly impact buyers, according to economists.
"[This] gives the authorities a strong incentive to ensure that ongoing projects continue as failing developers are restructured," said Williams.
According to recent analysis from Bank of America, Evergrande has sold 200,000 housing units that have not yet been handed over to buyers. That has exacerbated fears that home buyers may be left empty-handed by the country's second biggest developer.
In recent weeks, the government has turned its focus to limiting fallout from the crisis and protecting ordinary people. In a statement late last month, the People's Bank of China vowed to "maintain the healthy development of the real estate market, and safeguard the legitimate rights and interests of housing consumers."
While it did not refer to Evergrande specifically, the central bank has been pumping cash into the financial system lately to help stabilize the situation and calm nerves.
To be clear, not all companies are in dire straits. While some players are clearly struggling, "most developers are not on the brink of default," according to Julian Evans-Pritchard, a senior China economist at Capital Economics.
"With a couple of exceptions, most major developers are in a much stronger financial position than Evergrande and should be able to weather a temporary spike in their borrowing costs amid contagion fears," he said in a note to clients. That should provide some reassurance "amid the current market jitters," at least in the short term, he added.
But in the long run, it may matter little.
"Successfully navigating the structural decline in housing demand over the coming decade will prove more challenging," wrote Evans-Pritchard. "A drawn-out consolidation of the sector over many years seems more likely than an imminent wave of developer failures."