Most Chinese household wealth lies in real estate. Years of rising property prices have led to fat returns for investors in developer stocks — if a volatile ride along the way. Now, structural changes in China’s demographics coupled with slowing growth and tightening credit threaten a mostly rising tide. Beijing, too, appears to be running low on options to prop up the market.

Shares of Vanke, one of China’s biggest developers, returned 2,700 per cent in the 15 years to early last year. That coincided, some experts think, with China’s demographic peak. A shrinking population, fewer home buyers and a smaller workforce is set to weaken demand for properties. Yet the construction of new projects have since continued undeterred, adding half-built skyscrapers to an already full skyline.

Many builders saw their residential portfolios as a hedge against the more variable office market. This no longer holds. A slowdown has put pressure on rental income yields across the board. Oversupply has pushed offices vacancy rates in big cities to more than a fifth in the third quarter, the highest in a decade.

Shares of top groups China Evergrande, Country Garden, Vanke and Greenland Group are down by nearly a fifth or more since April. The latter recently defaulted on a project payment for Zhongnan Center, which if ever completed would be the second highest skyscraper in the world. In the past four years, Vanke’s ratio of total debt to equity has almost doubled. China Evergrande’s exceeds 230 per cent.

Beijing now has less leeway as it combats slowing growth and inflation amid dangerously high household debt with less stimulus. Yet China’s economy relies heavily on the property sector for growth. Related transactions account for almost a quarter of its gross domestic product.

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That has long assured the government’s backing for the sector, and will probably continue to do so. The economic growth, employment and the social stability that it ensures are key for the government. The only difference is that this time round it may find that a little harder to achieve.

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