In a complete about-face from a year ago, my friends these days are pessimistic whenever the topic of real estate prices is broached.

There’s the friend who owns a large luxury apartment in Beijing’s Miyun District. Last year, they put it on the market for 40 million yuan (nearly $6 million) but found no takers. This year, they dropped the price to 30 million, but still no luck. Back when the place was valued at 18 million, some buyers expressed interest, but my friend chose not to sell, figuring the price was bound to rise. They were right: It did rise — but now the house is priced out of its own market. Its value may be 40 million yuan, but even at 30 million no one is willing to buy.

There are many reasons for this phenomenon, with one being the fact that the number of people who can put together so much cash is exceedingly small. Even at 30 million, assuming a 70 percent down payment, the buyer must come up with 20 million yuan in cash, and there simply aren’t that many individuals capable of doing this. Add in all the new purchasing and lending restrictions that have been implemented, and the number of willing buyers shrinks even further. The property’s 30 million-yuan valuation exists in name only: In the absence of cash, it may as well be a pile of concrete.

Another friend — this one from Shanghai — has had a similar experience. They listed a house of theirs along Minsheng Road, on the Pudong side of the city. The residence was valued at over 10 million yuan, but they listed it for 9 million. Recently, they dropped the price by 10 percent, to 8.1 million, and still no interest! My friend is in a rush to sell but can’t find a buyer. They say they regret not selling at the peak of the market in 2016.

In reality, these two friends of mine aren’t the only ones filled with regret right now. Many of the speculators who entered the Chinese real estate market when it was at its peak last year — especially those who bought properties in first-tier cities such as Beijing, Shanghai, and Guangzhou — in hopes of flipping their purchases for profit after a year or two doubtless were not expecting so many new purchase and loan restrictions to be implemented. They’ve all ended up sustaining major losses. If they bought the property to live in, it’s no big deal, but if it was just an investment instrument, then they’re almost certainly in a pickle.

Some have suggested renting the unflipped properties out while waiting for the market to bounce back. But given how low the rate of return on renting is, how long are you prepared to wait before recovering your losses? Compounding the situation is the news that the Shanghai government, as part of a pilot project meant to develop the city’s rental market, will sell off two plots of land that can only be developed into rental housing — a move that just so happens to cut off the one route of retreat speculators had left! Prospects for the secondhand housing market in particular are looking bleak right now.

And let’s not think of Shanghai as a unique case. In addition to more direct methods of reining in prices and deterring speculators, such as purchasing and lending restrictions, many cities are implementing layered and far-reaching systemic reforms, with Guangzhou’s recently announced policy giving tenants the same rights to city services as homeowners being one such example. Over the past year, I have repeatedly warned of the dangers posed by this round of housing price increases and called for caution against being the one caught holding the baby. Some listened, but most thought of me as the boy crying wolf.

Anyone with a basic understanding of market operations knows that slow rises in value can persist over longer periods of time, while sharp jumps precipitate equally sharp drops. Any time the market experiences a stretch of frenzied action, it is sure to be followed by a bear period, and the rapid jump in home prices that occurred in 2016 is no exception. Nationally, the real estate market’s decade-long golden age has come to an end, and we have reached a turning point: If real estate values don’t drop significantly, there will at least be a long period of readjustment. And if this readjustment reflects inflation, income gains, and economic growth trends, it will certainly lead to lower home prices.

China’s per-capita property ownership has reached 40 square meters, with homeownership rates hovering between 80 and 90 percent. These numbers are higher than those found in any Western developed nation. Consequently, it will become increasingly hard to use real estate development to power economic growth in the future. Perhaps in some areas, there are hopes for the bubble to last a bit longer — as a result of migrant inflow to larger cities or local residents demanding larger, better homes — but it is no longer advisable to continue pouring our society’s resources into real estate development, as it is incapable of stimulating long-term economic growth at the national level.

The monetary gains in real estate prices over the past few years are of course closely tied to a shift in debt leveraging. They are linked to the massive increase in lending by banks, as well as to the rising levels of debt held by both developers and individuals. To be honest, it’s no wonder piling up capital and money in this fashion led to a bubble. Now, access to funds has tightened, and while you weren’t looking, some of the richest families in China have quietly become some of the most indebted.

To be clear: None of this is to say that real estate is not worth investing in. If you are wealthy, real estate investments can make up a reasonable portion of your portfolio — just don’t go hoping that your properties will double or triple in value overnight. As economic growth is beginning to level off, a more moderate approach to returns on investment and value appreciation can still lead to fine results. Real estate investment is perhaps not suitable to those speculators who have to borrow money to enter the market, as the expected growth of real estate prices is unlikely to outpace investment costs, including taxes, commissions, and mortgage payments. Those buried in bank loans will certainly be the first to suffer — and the most painfully — in the event of a sudden U-turn in the market.

Translator: Kilian O’Donnell; editors: Lu Hongyong and David Paulk.

(Header image: Two men fish in a river near Shenyang, Liaoning province, April 10, 2010. VCG)