After three years of silence, well-known Chinese real estate businessman and SOHO China founder Pan Shiyi recently published an article, describing the development of China’s real estate market over the past 30 years as akin to a “Ponzi scheme.” However, after sparking heated discussion on Chinese social media, the article was deleted.
According to various media reports, on the 16th Pan Shiyi posted on his personal WeChat public account an article titled "My Reflection," recalling that at the beginning of China's commercial housing development in 1998, the industry went to Hong Kong to learn sales approaches and picked up terms like "mortgage," "property development," and "property launch." “Later, we also learned the high-leverage, high-rotation practices, and in the mainland these ways quickly became distorted.”
After just a few years, industry competition shifted from who could build and sell houses best, to who could “acquire more land, get financing faster, expand more aggressively.”
The article pointed out that developers rely on pre-sales income to survive, companies rely on constantly borrowing new money to pay old debts, local governments depend on selling land for their livelihood, and homebuyers believe prices will always rise: “these four things are tied together—if any one breaks, the rest will collapse too.”
Pan Shiyi stated that, for a considerable period of time, the practices of some real estate companies had no difference with a “Ponzi scheme.” “What kept it running was no longer solid operations or genuine cash flow, but the next round of financing, the next buyer, the next round of price increase. Once these all stop simultaneously, the chain falls apart. In plain language, this is called passing the parcel; in professional terms, this is a Ponzi scheme.”
The article noted that while the industry looked prosperous on the surface, it actually grew increasingly fragile; now, the losses are counted in trillions of RMB, bringing pain to countless families. “We in the real estate business should all reflect on what we have learned from this.”
The article concluded that the current state of China's real estate sector—with some developers already found guilty of specific crimes by the judiciary—was not only the result of individuals, but also a product of the combined effects of the system, finance, local government finances, corporate expansion, and societal expectations.