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Construction cranes stand idle in China’s Yunnan Province, on the easternmost edge of the Himalayas. Building has ground to a halt on Hainan, off the coast of Vietnam, and up in Heilongjiang, along the Russian border.

Across China, tens of millions of square feet of unfinished apartment buildings — the legacy of a real estate boom gone awry in 2021 — are derailing countless dreams of owning a home.

In a country where private homeownership was only legalized two decades ago, ordinary Chinese are discovering how quickly fortunes can turn in the housing market. Creeping price declines and plummeting sales in recent months have called into question the way freewheeling property developers have financed, built and marketed homes to the masses.

No developer encapsulates the running travails quite like China Evergrande Group, the giant conglomerate that’s now in default and groaning under more than $300 billion in liabilities. But many smaller developers also followed Evergrande’s familiar strategy: borrow heavily, build aggressively — and make buyers pay in full upfront, sometimes before ground is even broken. Until the bottom fell out, nearly nine out of every 10 homes in China were “pre-sold,” according to Hongta Securities Co. Buyer protections commonly used abroad, such as escrow accounts and installment payments, have tended to be weak.

The result is a mirror image of the 2008 subprime fiasco. Back then, in the U.S., it was homebuyers who got in over their heads. This time, in China, it’s builders. President Xi Jinping wants to crack down on what he sees as debt-fueled excess in the real estate industry without hurting the many millions who’ve scrimped and saved to buy homes. City dwellers tend to have roughly 80% of their assets tied up in housing.

Gary Chen is one of the 1.6 million Evergrande customers who’s waiting for his home to be finished. In 2019, Chen plowed the equivalent of $55,000 — 13 years of savings, he says — into a three-bedroom apartment in the Jiu Long Bay area of Kunming, the provincial capital of Yunnan. Two years later, construction is stalled. Dozens of cranes loomed beside the unfinished tower block, Chen said last month. The shallow foundations were soaked with water. Some 4,000 units remained unfinished.

“It never occurred to me that things would go wrong for a developer of this scale,” says Chen, 33, who declined to reveal his job.

Like Chen, most buyers simply thought they’d get what they’d paid for. Evergrande Chairman Hui Ka Yan has pledged publicly to complete projects. But as of mid-November, building sites covering 49 million square meters (572 million square feet) remained idle, according to a report by local media Caixin. That’s the equivalent of roughly 40% of all Evergrande projects that were underway at the end of 2020, before trouble hit.

It’s not just Evergrande’s customers that are in limbo. At Kaisa Group Holdings Ltd., some buyers are still waiting to receive apartments bought five years ago, according to state broadcaster CCTV. And at Tahoe Group Co., some owners have just started to see construction resume four months past the planned delivery date.

Representatives for Evergrande, Kaisa and Tahoe didn’t immediately respond to requests for comment.

To be sure, Chinese authorities are likely to make completing homes a priority even as they watch developers like Evergrande and Kaisa default. Homebuyers will probably be high on the list when debts are reckoned with, given Xi’s focus on “common prosperity” and aversion to social unrest.

But the building delays are sapping confidence. In cities nationwide, prices of new homes have dropped for two consecutive months, albeit less than 1%. Sales tumbled 24% from a year earlier in October.

The national numbers may mask starker declines in some pockets. In some economically weaker cities, the slump has been so sharp that at least two dozen local authorities have restricted minimum prices. A property industry association in Zhangjiajie, a relatively small city in mountainous central China, warned developers in late November not to push prices “off the cliff.” Home sales in northern China are likely to trail the more affluent south, Nomura Holdings Inc. economists say.

One small developer is struggling to entice homebuyers in so-called tier-three cities, even after offering 20% discounts, an executive said, asking not to be identified. Even at a top-10 builder of upmarket homes, some prospective buyers concerned about its ability to deliver on time have delayed purchases and demanded proof of its financial status, according to a person familiar with the matter.

To entice buyers in cities where large price cuts are banned, some developers are offering free parking lots and home appliances instead, local media have reported.

Granted, construction has resumed in some places. But many who bought earlier are aghast.

One recent buyer, who asked to be identified only by his surname, Tan, said he purchased a unit in the Evergrande Mansion development in Wenzhou, in southeastern China, only to have the developer slash prices there by a third, to below going rates. In the eastern city of Taixing, another buyer, Yin, said he regretted purchasing from Evergrande before the company’s troubles came to light, even though his unit was delivered on time.

Yin figures selling now will be difficult given the damage to Evergrande’s reputation and various construction flaws in his building. “Prices will drop for sure,” he says.

For developers, things could get worse from here. Proceeds from home sales make up more than half of their cash inflows, according to calculations based on official data, and stress is growing across the industry. Local governments have begun tightening oversight after protests broke out over the delays.

“Locals are getting increasingly nervous,” says Larry Hu, head of China economics at Macquarie Group Ltd.

Curbs on the property industry are expected to broadly remain, economists said after an annual meeting by the Communist Party’s top decision makers last week kept relatively hawkish language on real estate. Still, marginal easing of developer financing has emerged in some areas.

And so what once seemed unthinkable now appears quite possible: the heady days of selling homes in China before they’re built might be threatened. The People’s Bank of China was advising changes as far back as 2005. A city in the southern province of Guangdong tightened up in 2018. Last year, Hainan, designated by Xi as a special economic zone, required developers to sell residences only after construction was finished.

In July, a similar stipulation was put on urban land parcels offered in Hangzhou, where Alibaba Group Holding Ltd. is based. Last month, the Beijing local government required developers buying prime land near the eastern business district to do the same.

Many developers remain unprepared for the worst. A nationwide ban on pre-sales could wipe out as many as half of small builders, according to Zhang Dawei, an analyst at Centaline Group.

“Developers could be forced to gradually shift away from pre-sales to sale of completed projects in the future, though that’s going to take a while,” said Ziv Ang, a Kuala Lumpur-based analyst at UOB Kay Hian. “The current financing environment remains tough for most developers, meaning they would be under huge pressure if they were to make that shift.”

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