All happy property owners are alike, each unhappy owner is unhappy in their own way

Russian writer Tolstoy’s famous opening to ‘Anna Karenina’ refers to families. But it seems equally true for today’s property markets around the world as central bank stimulus bubbles start to burst:

  • China had the biggest bubble and is first to burst, with prices and sales falling
  • US and European commercial property markets are close behind as bankruptcies increase
  • Residential housing markets are probably next in line, as interest rate rises start to impact


Elizabeth Kübler-Ross originally set out to understand how people come to terms with loss and death. Her ‘Paradigm of Loss’ model has since been more widely applied.

It clearly applies to today’s property market crisis as the chart suggests:

  • Property prices have been rising for decades, and people now assume this is “normal”
  • ‘Denial’ is therefore their reaction to any weakness – “prices never go down”; “the government wouldn’t let them fall”
  • ‘Anger’ is the next stage when prices do start to fall as ownership and mortgage costs increase
  • ‘Bargaining’ follows: lenders don’t want to book losses and so extend terms, borrowers cut back other spending
  • ‘Depression’ is the next stage when the reality of the downturn can no longer be avoided
  • ‘Acceptance’ is the final stage, when people move on and start to look for new opportunities


China’s property market only began to develop in the late 1990s. Before then, all property was owned by the government. There wasn’t even a Chinese word for “mortgage”.

Then the government panicked after 2008’s subprime crisis and launched the world’s largest-ever stimulus programme:

  • Lending has now reached $44tn; property prices peaked at 50x average incomes in Tier 1 cities like Shanghai
  • But now, prices are falling as the chart shows as buyers start to accept prices aren’t likely to recover
  • As the Wall Street Journal notes, China now has 20m pre-sold and unfinished apartments

Unfortunately for the buyers, these are likely to remain unfinished.

Evergrande, the world’s most indebted property developer with $300bn of debt has already gone bankrupt.

And this month has seen major developer China Vanke joining Country Garden in potentially following it.


US markets are also seeing a downturn. The Federal Reserve’s stimulus policy effectively destroyed the market’s key role of price discovery:

  • If interest rates are near zero and the Feb is printing money, why bother to negotiate the price?
  •  The important thing is to buy as much as possible, and just wait for prices to rise

But today, interest rates are moving back to more normal levels. And so these deals no longer work. As New York Fed governor, Scott Rechler, warned in January:

“The entire commercial real estate space has to reset. No one really knows where the values are…You can’t raise rates this quickly and not expect a financial shock. We’re already working on transactions at 50% on the dollar: the equity is wiped out and half of the loan is wiped out.”

San Francisco’s iconic 4 Seasons Hotel (pictured) confirms his insight. The owner bought it for $127M in 2019 and spent millions in renovation. Last week, they defaulted on a $72m loan.

Unfortunately, commercial real estate is in major trouble across the USA:

In turn, regional banks are facing major problems. They made many of these loans – which now cannot be repaid.

EUROPE SEES COMMERCIAL AND RESIDENTIAL PROPERTY START TO CRASH  Europe’s residential and commercial property markets are also in the eye of the storm.

Giant Austrian property developer Signa went bankrupt in November.  Its jointly-owned landmark Berlin store, KaDeWe, declared bankruptcy in January.

German residential property is also under major pressure.  It is seeing its worst downturn for 60 years:

  • Multi-family buildings saw prices fall 20% last year
  • Single family properties dropped 11% and apartment prices fell 9%

And TAG, one of the largest landlords, warned last month that prices could fall 30% from their peak.

Unfortunately, we are probably only at the start of the crash. Elizabeth’s Kübler-Ross’ ‘Paradigm of Loss’ model is probably the best way to track its development.