The mainland property market is in meltdown and the damage is spreading, not only to consumers but across the mainland's economy and, perhaps, internationally as well.
Since last year, Beijing has sought to burst what it saw as a dangerous bubble, which was pushing home prices beyond the reach of the middle class. It did so by initiating a series of tough measures to restrict bank lending and a crackdown on speculation.
As a result, sales have slumped by as much as 70 per cent, triggering a mainland-wide price war among major developers desperate to raise cash amid a credit crunch. Many are not expected to survive the shakeout.
With property developments stalled, many mainland and international suppliers of cement, steel, copper and other construction materials are starting to feel the pinch.
Meanwhile, falling property prices have pushed land values down, crippling the ability of local governments to raise money since land is a major source of their income.
Thousands of homebuyers who bought flats at peak prices have been hit by the downturn: some have gone bankrupt, while others are stuck with negative equity.
Negative equity arises when the housing loan exceeds the market value of the property.
Except for a brief period in 2008, this is the first major housing market downturn since the mainland's property market became commercialised in 1998.
Major developers - such as China Vanke and China Overseas Land and Investment - have cut prices of new flats by a third, while smaller players have started selling new flats below their development costs.
The steep discounting reflects the stringent curbs on the property market, and developers' desperation to raise cash as bank credit tightens.
Shanghai and Beijing are two of 46 cities that have restricted residents from buying more than two flats - the toughest measure to cool the property boom.
'The latest round of austerity measures are the harshest we've ever seen on the mainland,' said Sherman Lai Ming-kai, chairman of Centaline Property Agency. 'Sales in major cities such as Beijing have plunged 70 per cent from the peak in April of last year, with some new projects in outlying areas being offered at a price cut of 50 per cent.'
The municipal governments of Beijing, Shanghai and Guangzhou recently failed to sell land parcels, as developers struggled to raise funding amid falling sales.
Meanwhile, declining land sale revenues make it difficult for local governments to raise funds to finance low-cost housing and other infrastructure projects that are government priorities.
'The property market is entering a chilly winter,' said David Ma, general manager of Hon Kwok Project Management, a unit of Hong Kong-listed Hon Kwok Land Investment.
As this year draws to a close, many developers have little choice but to sell their projects at steep discounts to fund construction costs and meet year-end bank payment deadlines and worker bonuses, according to Ma.
'To survive, we need to raise cash. Cash is king,' China Vanke told the South China Morning Post. 'We will actively sell properties, exercise caution in land acquisition and take stringent cost controls. We have to keep in shape this winter to enhance efficiency.'
Industry watchers estimate 50,000 property agents will have lost their jobs in the downturn and more property agencies are closing.
'We have closed 200 branches in the mainland involving a job cut of 3,000 since April this year,' said Centaline's Lai. Centaline now has 1,300 branches after the consolidation, according to Lai.
Richard Silk, an analyst at SNL Financial, an American business intelligence firm, said some developers would be going under.
'It will be those that are most highly leveraged, and in particular those which lack access to bank finance and have relied on trust companies,' Silk said.
Trust companies include non-bank institutions that sell a range of investments, including real estate-backed loans, to individuals.
There are about 60,000 property firms on the mainland, according to Lee Wee Liat, regional head of property research at Samsung Securities (Asia).
'But with this property sector downturn, the number of firms will fall to 40,000, either because they close down or through mergers and acquisitions,' Lee said.
So far this year, the property sector has seen 253 cases of mergers and acquisitions worth 90 billion yuan (HK$110 billion), according to Centaline Property Agency.
To survive, cash-strapped developers have been forced to tap expensive informal loans from trust companies, wealthy individuals and cash-rich firms.
As of September 30, the China Trustee Association has disbursed property loans totaling 679.77 billion yuan, up 79.9 per cent from the same period last year, its data shows.
The association estimated that 700 billion yuan in loans will be due for repayment over the next 12 months.
Economically, the impact of the property slump has started to boil over.
In the past two months, hordes of irate homebuyers in Shanghai, Beijing and other cities have stormed developers' sales offices.
They were furious that developers' steep price cuts had lowered the value of the homes they had purchased at full price, and they were demanding compensation.
However, China Vanke said both buyers and developers were affected by the downturn.
'Prices are determined by demand and supply, not by developers,' the company said.
'We understand the feelings of buyers whose investments have been damaged by price fluctuations. But we have to adhere to market principles because this is the only way to achieve a healthy and orderly development of the market.'
Xu Lijian, 29, is among the 100 flat owners who marched into the sales office of Greenland Group in late October. The state-owned developer had cut prices on a new batch of units at a housing project named Qiuxiafang in Shanghai's suburban Jiading district. The prices were reduced to 11,000 yuan per square metre, compared with 17,600 yuan per square metre that Xu paid six months earlier.
The flat owners demanded that their contracts for the unfinished flats be cancelled.
'The government's curb was supposed to kill speculators, but now it is also killing end users like us,' Xu said.
Beijing faces a difficult dilemma. If it eases its tough measures, it risks re-inflating the housing bubble. But if it clamps down too hard, it may push thousands of young homeowners into negative equity.
'More disputes between buyers and developers will erupt in the coming months if there is a plunge in home prices,' said Frankie Wong, chief operating officer of Hong Kong-based Pan Asian Mortgage.Wong said average outstanding mortgage loans on the mainland were 15 times that of average household incomes. That's even higher than Hong Kong's record of 10 times income at the market's peak in 1997.
The alarming debt levels of mainland homeowners meant they were living beyond their means, and a fall in property prices was inevitable, Wong said.
The ripple effects of falling property values extend beyond individuals caught in the negative equity property market spiral.
The slump in land sales - which account for about a third to 40 per cent of local government revenue - has had a substantial impact on local government finances.
From January to November, 24,000 land plots were sold in 130 mainland cities for 1.18 trillion yuan, a 30.5 per cent fall in value from the same period a year earlier, according to Centaline.
The city of Wenzhou is an extreme case in point. Known as a hub of private businesses, Wenzhou has faced financial hardships because of rising costs, soaring black-market interest rates and the credit squeeze.
More than 80 debt-laden entrepreneurs have fled, and a shoe factory boss jumped to his death after being saddled with 400 million yuan in debt.
A full-blown credit crisis has forced the city to set up a 5 billion yuan emergency fund to bail out cash-starved small firms after Premier Wen Jiabao's visit in October.
The mainland's property woes are spreading abroad too.
International iron ore prices dived 30 per cent in the past month due to China's declining housing demand. Copper futures have also fallen almost 10 per cent.
Steel prices are expected to decline, too, since the mainland housing market consumes about 29 per cent of the mainland's steel and almost 15 per cent of the world's supply.
'If the government caves in to pressure and tries to revive the bubble by printing massive amounts of money, it could lead to hyperinflation, currency devaluation, and social and economic chaos,' said independent economist Andy Xie.
That's not much comfort to flat owner Xu.
'My wife and I have decided to delay our plan of having a baby, and we need to tighten our belts to prepare for the worst,' he said.
Average home prices in Shanghai have fallen this much from their peak in mid-2009, to about 1.12 million yuan for a 1,000 sq ft home