In recent gatherings with friends, discussions inevitably turn to the major crisis in the real estate sector, which has resulted in losses calculated in trillions and brought the entire industry to the brink of collapse. The pain inflicted on countless families and society as a whole may take years, or even decades, to gradually heal. Media reports indicate that relevant parties have already pleaded guilty and expressed remorse. Reflecting on the events of recent years, many scenes remain vivid in my mind. We, as real estate developers, must seriously consider what lessons we have truly learned from reaching this point. After more than three decades of development, we must confront the reality that the "tuition fee" has been exorbitantly high.
I have read various expert commentaries and reflections, each with valid points. But what is the root cause of the problem? My views may not be entirely correct, but I wish to candidly share what I have experienced and observed over the years.
From welfare housing allocation to commercial housing Three decades ago, China lacked a genuine real estate market. Housing was primarily allocated through work units. Commercial housing initially emerged only in special economic zones, followed by a category known as "foreign sales housing," which required a special license and was mainly sold to compatriots from Hong Kong, Macao, and Taiwan, as well as foreigners. The year 1998 marked a watershed moment—the state decided to abolish welfare housing allocation and transition to commercial housing. However, the market struggled to gain momentum in the initial years. Many cities experienced sluggish activity, causing anxiety for both the government and enterprises. Everyone was exploring uncharted territory with little certainty.
During that period, several real estate developers, including myself, were frequently invited by the government to discuss countermeasures. Honestly, we ourselves lacked expertise and could only offer superficial opinions. Each time we visited Hong Kong, we immersed ourselves in learning: collecting sales brochures for every housing project, photographing show flats and models, and studying their sales techniques and industry jargon. Terms like "mortgage," "housing project," and "project launch" were adopted from Hong Kong practices during that era.
Looking back, the act of learning itself was not the issue. The problem arose when we imported the practices of high leverage and rapid turnover, which quickly became distorted and exaggerated in the domestic context.
Mortgages and失控的杠杆 To stimulate housing purchases, banks began offering loans to homebuyers, known as "mortgages." At the time, I supported this direction, reasoning that lending to homebuyers was preferable to lending to developers because homebuyers represented genuine demand and posed relatively controllable risks. Initially, the down payment requirement was 50%, representing a leverage ratio of 1:1. However, as market performance fell short of government and bank expectations, down payment ratios were successively reduced—to 40%, 30%, 20%—leading to increasingly higher leverage.
Subsequently, absurd situations began to emerge: some developers and banks collaborated to offer 5% down payments, meaning borrowed funds were 19 times the amount of personal investment. Even more absurdly, proposals for "zero down payment" emerged. At the time, China Central Television had a program called "Dialogue" that featured an episode on zero down payments, where I was invited as a guest. I explicitly opposed the idea, arguing that zero down payment represented infinite leverage—allowing property purchases with no personal investment, essentially gambling entirely with others' money, creating uncontrollable risks. However, my comments were entirely edited out from the broadcast.
This incident left a deep impression on me. Local governments needed growth, banks needed to lend, and enterprises needed to sell properties. The collective urgency led to layers of leverage being stacked upon one another.
"Land bank" Simultaneously, real estate developers frantically devised strategies, created concepts, and produced planning reports. It became common practice for associations to issue "real estate planner" certifications. One highly influential concept imported from abroad was the "land bank," implying that developers with larger land reserves had larger "land banks," making it easier to list on stock exchanges and issue shares or bonds. Investment bank analysts further fueled this trend through their reports.
The practice of developers amassing large land reserves aligned perfectly with local governments' reliance on land finance—revenue from land transfers quickly became a crucial source of income for many local governments. With multiple forces pushing in the same direction, it wasn't long before one developer's land reserves exceeded 100 million square meters. Lagging developers scrambled to catch up, fearing being left behind. Within a few years, industry competition shifted from building and selling quality homes to competing over who could acquire more land, secure financing faster, and expand more aggressively.
Not only did the industry rapidly膨胀 itself, but it also spawned an entire ecosystem revolving around it: real estate media became an industry, intermediary agencies became an industry, and various financial products and consulting services flourished. In such an atmosphere, only positive remarks were tolerated; raising concerns made one an outlier, a "jinx." The real estate sector had spiraled out of control.
Ponzi scheme Eventually, experts and the government recognized the severity of the problem. However, for a considerable time, the focus remained solely on "rapidly rising housing prices." Society expended significant energy debating price-to-income ratios and rent-to-price ratios. While housing prices were indeed an issue, they were not the core problem. The real issue lay in the operational model behind real estate. Once the operational model returns to normalcy, housing prices will naturally revert to reasonable levels.
What is this model? Developers survive on presale revenues, using today's sales to fill yesterday's financial holes; enterprises rely on continuously borrowing new funds to repay old debts; local governments depend on land sales, inherently inclined to push land prices higher; homebuyers believe prices will perpetually rise, purchasing properties not for occupancy but for resale profits. These four elements are intertwined—if one fails, the others collapse accordingly.
The industry appeared prosperous on the surface but grew increasingly fragile, relying on subsequent buyers' payments, continuous financing, and ever-rising price expectations to cover previous commitments and deficits. Of course, houses are tangible assets, and people always need shelter—not all real estate transactions can be lumped together. However, it must be acknowledged that for a significant period, the practices of some developers were scarcely different from a "Ponzi scheme": their operations were sustained not by sound management and genuine cash flow, but by the next round of financing, the next buyer, the next price hike. Once these simultaneously cease, the chain collapses. In plain terms, this is a game of "passing the parcel." In professional terminology, it is a Ponzi scheme.
Only a minority can exit Around 2004-2005, when real estate was booming, I mentioned during a real estate forum that a certain company's business model might be problematic. After the forum, the company's owner pulled me aside from the dinner table to a quiet spot and sternly warned me: "Don't ever discuss our company's business model again!" I remained silent. After a moment, his tone softened slightly, and he added, "You spoke well about small property rights housing earlier. You should focus on that topic from now on." I continued my silence, not uttering a word. Thereafter, I avoided him as much as possible to prevent awkwardness. Later, he sent messages through intermediaries reiterating the same demand: refrain from discussing their land bank and business model. Gradually, I became persona non grata among these developers, and even some city governments grew less welcoming. Simply put, I was seen as someone threatening their livelihoods. The media politely termed me an "alternative real estate developer," while privately, I was labeled a jinx.
During the real estate boom, numerous organizations, associations, chambers of commerce, and alliances sprang up. They excluded me, citing the pretext that our company was not large enough. Once, while attending a conference in Shanghai—some alliance's annual meeting, the name escapes me—our company's name was missing from the backdrop. It was later printed temporarily and pasted on. Another experience left a deeper impression. A company rented space in our Beijing Galaxy SOHO development to sell their properties, with long queues outside. I wore a hat, pulling the brim low—frankly, I worried about being recognized and ejected. With two colleagues, I squeezed into the sales office. The scene was straightforward: individuals paid 50,000 yuan first to obtain a unit number, and then the number itself began to be speculated on. Witnessing this, I understood: many in the queue were not there to buy a home to live in, but operated on the assumption that prices would rise, and someone would always offer a higher price.
After safely exiting, my colleagues asked for my impressions. I replied with four words: Ponzi scheme. Those standing in long queues back then cannot all be labeled speculators; many were simply swept into a chain that seemed perpetually rising. In that chain, everyone believed they could exit before the music stopped. But ultimately, only a minority ever truly can.
Lesson: Integrity is the bottom line Three decades have passed, filled with numerous events. The current state of China's real estate is not solely the fault of certain developers. Judicial authorities have already determined specific culpabilities. However, from an industry perspective, the path these enterprises ultimately took can be summarized in four words: Ponzi scheme. Certainly, reaching this point is not solely an enterprise issue; it is the result of the interplay between systems, finance, local fiscal policies, corporate expansion, and societal expectations.
We truly knew nothing at the beginning, starting from scratch, learning from others, learning from Hong Kong,摸索ing as we went. Making mistakes and taking detours during this process was inevitable. Business failure itself is not可怕—as long as the bottom line of integrity is maintained, the worst outcome is company bankruptcy, with losses primarily borne by oneself, without causing extensive harm to others, the economy, or society. What proves fatal is when an industry gradually abandons integrity, building business models on continuously increasing leverage, perpetual financing, and constantly finding new participants. Even more dangerous are those who intentionally create illusions, drawing more people into the scheme. At this stage, errors cease to be merely corporate mistakes; the damage spreads to finance, local governments, ordinary families, and society at large.
Ultimately, integrity is the bottom line. Upholding this line allows room for correction even after mistakes are made; losing it means that no matter how large the industry or high the growth, everything can collapse overnight.
Final thoughts Reflection is necessary to move forward. According to public data, the real estate sector has declined for 47 consecutive months. When will recovery come? I believe the priority is to address these legacy issues promptly. It's akin to treating an illness: take medicine when needed, undergo surgery when necessary—delays only worsen the condition and hinder recovery. Only by accurately diagnosing the root cause and earnestly commencing treatment can real estate potentially hit bottom and rebound.
The most critical element for real estate market recovery is confidence. When handling legacy issues, homebuyers must be prioritized above all else. They placed their complete trust in us developers. Mortgage contracts are signed三方ly by the bank, the developer, and the homebuyer. When selling properties, our mantra as developers was "all five certificates齐全"—four documents with red seals, one with the national emblem. These certificates themselves represent a form of government endorsement. If buyers cannot obtain their properties after purchase, market confidence will be utterly shattered, and real estate recovery becomes impossible.
After such a prolonged decline, further delays are unacceptable. However, merely urging treatment is insufficient; fundamentally, integrity must be restored. Confidence must be built on the foundation of integrity, and "good houses" must be constructed on the foundation of integrity. We eagerly await the early arrival of that day.