China’s real-estate market has crashed to a two-decade low, with more than 70 major developers insolvent and developer debt estimated at $4 trillion (15 percent of GDP), over half already in default; household wealth heavily concentrated in property has suffered severe losses after a boom fuelled by abundant cheap credit, easy refinancing, oversupply and the illusion of forever-rising prices channelled through the state-dominated banking system.

The unraveling, exemplified by Evergrande’s collapse and its founder’s life sentence for fraud, illustrates how liquidity dry-ups and leverage overheating trigger panic, monetary tightening and price collapses; the sector’s cascading effects on hundreds of industries and its role as a major employer make prolonged slowdowns economically damaging, undermining the assumption that real estate is a safe-haven asset immune to business cycles.

For India, where real estate is the second-largest employment sector after agriculture, household wealth is similarly concentrated, and valuations remain lofty amid signs of demand deflation and demographic pressure, the Chinese experience serves as a caution that vertical expansion and heavy expenditure cannot indefinitely sustain over-leveraged markets once euphoria gives way to panic and credit contraction.

Real-estate prices always climbing up, just like gravity pulls everything down, is presumed to be a multi-generational axiom among the urban middle class in India and most developing countries. 

How long will it hold up with indicators of demand deflation, demographic decline, market saturation, increasing gentrification, and lofty valuations, remain to be seen. 

The illiquid nature of real-estate and its overreliance on clusters, externalities, and feedback loops further compound the woes of homebuyers wrangling with shoddy build-quality. Total reckoning with the perils of mis-selling after taking possession is becoming commonplace despite ample regulations and red herrings. 

Before the frenzy for real estate in India reaches new heights, it would be worthwhile to look at a cautionary tale across the Great Wall.

This year in August, China’s real estate market crashed to a........

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