How might China’s property crisis distort the real estate market in the APAC region?
China’s real estate sector, once the engine of its economic growth, is mired in a protracted crisis. Home prices have fallen by nearly 10% since early 2024, with new home sales projected to drop 15% in 2025 due to weak demand and structural oversupply.
The roots of this crisis trace back to 2020’s ‘three red lines’ policy, which restricted developer borrowing and exposed systemic risks in a sector that once contributed 25% of China’s GDP.
However, China’s property crisis not only threatens the stability of the world’s second-largest economy but is set to ripple through the broader Asia-Pacific (APAC) real estate market.
How a perfect storm of oversupply and falling confidence fuelled China’s property crisis
China’s property crisis has been characterised by a wave of developer defaults, unfinished housing projects, and plummeting property values, driven by oversupply and demographic shifts.
While these problems have been bubbling for years, things came to a head in 2021 when Evergrande, one of the country’s largest property developers, defaulted on its debts. The fallout exposed systemic issues in China’s real estate sector, including over-leveraging and a reliance on pre-sales to fund construction.
In the years that followed, other major developers like Country Garden have also faced financial difficulties. Consumer confidence has plummeted, with homebuyers refusing to make mortgage payments on unfinished projects.
Government measures – such as mortgage rate cuts, the lowering of deposit requirements, and a 4tn yuan ($560bn) ‘whitelist’ lending program for viable projects – have stabilised prices in tier-1 cities but have so far failed to revive broader demand. Fitch Ratings warns the slump could extend into 2025, with prices falling another 5% and sales declining 10%.
The traditional ties between China’s middle class and property
For decades, China’s middle class has viewed real estate as a method of storing and accumulating wealth. With limited access to other investment vehicles and strong historical growth in property values, buying real estate became both a financial strategy and a cultural norm. However, the current crisis has shattered this narrative.
This lack of confidence is further compounded by China's ongoing economic slowdown and uncertainty about future government interventions in the housing market.
From domestic uncertainty to offshore opportunities
As the domestic property market falters, China’s middle class are increasingly turning their attention to overseas investment opportunities.
While China's capital controls place significant restrictions on overseas real estate purchases (individuals are officially limited to exchanging $50,000 per year) Chinese investors continue to find ways around these restrictions, including setting up offshore companies, using foreign relatives, or leveraging corporate channels to access international property markets.
Countries in the APAC region that offer transparent regulations and political stability are attracting particular interest. Many investors are also looking to markets that may offer higher rental yields, as the 1.5%-2% returns on Chinese rental properties lag behind local mortgage rates.
With $27tn in household savings – 25% held in cash – even a modest reallocation abroad could reshape regional markets.
In terms of popularity, Australia remains a top destination, with Chinese buyers accounting for 25% of foreign residential purchases in 2023. Sustained growth in property prices in cities like Sydney and Melbourne are likely to attract fresh capital inflows in 2025 and potentially drive prices to new highs.
Malaysia, with its more affordable property prices and government initiatives like the Malaysia My Second Home (MM2H), already saw a sharp rise in enquiries from Chinese nationals in 2024. Demand for student accommodation may prove particularly strong amid a growing number of Chinese nationals choosing Malaysian universities over traditional favourites like the UK and the US.
Singapore’s strict property cooling measures haven't deterred Chinese investors, who view its reputation as a financial hub with strong property laws and a stable political environment as a prime target for overseas investment. Chinese buyers are drawn to Singapore’s high-end real estate market, with luxury condominiums being particularly popular. Increased demand in 2025 could lead to further price hikes in an already competitive market.
How China’s construction slowdown may also ripple through APAC real estate markets
China’s property crisis doesn’t just affect the flow of capital from Chinese investors – it’s a regional disruptor with far-reaching implications for construction, trade, and investment across the APAC region.
China is the world’s largest consumer of construction materials, including steel, cement, and timber. Reduced domestic demand for these materials due to the slowdown in property development is set to reshape regional supply chains.
As housing starts plummet (down 25% year on year) and inventories remain unsold, reduced demand for materials like steel and copper – which China consumes 20% and 40% of globally, respectively – is lowering commodity prices. This dynamic creates diverging outcomes across the APAC region.
In Australia, where over 80% of iron ore exports were directed to China in 2022, declining demand could pressure mining revenues and weaken the Australian dollar. However, cheaper steel imports may lower construction costs for local developers, potentially stimulating residential projects.
Southeast Asian nations face a mixed outlook. Countries like Vietnam and Indonesia, reliant on Chinese infrastructure investments, risk slowed growth, while Malaysia’s property sector benefits from lower material costs.
Simultaneously, geopolitical tensions are accelerating supply chain diversification. US-China trade friction has already driven manufacturers to relocate factories to Vietnam and Mexico. This trend looks set to accelerate under the current US administration and could bolster demand for industrial and residential real estate in logistics hubs such as Hanoi and Johor Bahru.
Diverging fortunes in the APAC real estate market in 2025
The region’s markets will likely fragment in 2025 based on their exposure to Chinese capital and commodities.
Gateway cities like Sydney, Auckland, and Singapore are poised to benefit from safe-haven demand. High immigration and limited housing supply in Australia and New Zealand insulate these markets from Chinese volatility. Notably, New Zealand’s foreign buyer ban exempts Australians, creating a loophole for Chinese investors via Australian subsidiaries. Singapore’s commercial real estate sector thrives as multinationals establish regional headquarters, though oversupply risks linger in markets like Bangkok, where office vacancies exceed 26%.
Policy innovations are also shaping opportunities. China’s ‘social housing conversion’ strategy, which repurposes unsold inventory into affordable units, mirrors Singapore’s public housing model. APAC governments may replicate this approach to address urban shortages.
Currency and debt risks add complexity. A stronger US dollar, driven by persistent inflation and high interest rates, could squeeze APAC central banks, limiting their ability to cut rates and support real estate. Emerging markets like Cambodia and Thailand face particular risks, with corporate defaults and housing debt threatening stability.
Navigating a new era of volatility
China’s ongoing property crisis is a double-edged sword for the Asia-Pacific real estate market. While gateway cities like Sydney and Singapore stand to gain from capital inflows, commodity-dependent economies face headwinds.
For investors, the key lies in balancing opportunity with risk – monitoring policy shifts, trade dynamics, and China’s uneven stabilisation efforts. As Beijing grapples with its ‘balance sheet recession’, the ripple effects will test the resilience of Asia-Pacific markets in 2025 and beyond.
If you or a client are considering investing in the APAC real estate market in 2025, speak to an expert from Redpin to learn how to save money and potentially simplify the purchase process.
