China’s property crash fallout engulfs Southeast Asia

Walk around one of Phnom Penh’s boulevards after dark – one eye on the side-street traffic – and the tower blocks tell a story as good as any analyst report. Most of the windows in the glass-and-concrete residential apartments are unlit. 

Not because they are under construction or sold off-plan and awaiting to be handed over – they are simply empty. 

Phnom Penh is not a ghost town – the city still bustles. But after the investment peak between 2016 and 2019, it fell victim to a region-wide demand slump partly fueled by a Chinese “win-win” property rollout. 

Phnom Penh had around 20,000 condos in 2019. By the end of 2024, it was roughly 60,000 or close to 20% of Cambodia’s annual growth. Then between 2020 to 2021, Chinese-state capital controls took hold. 

Investors could no longer move large sums into Cambodia, and Covid-19 cut the inflow of foreign renters, buyers and tourists. By late 2023, sales had fallen dramatically, pushing developers toward mid-range stock. 

Unoccupied condos

Three years later, Chinese investment remains far below its peak, and across much of the city supply outstrips demand. It is a pattern that repeats across Southeast Asia. 

Local commentators note the oversupply, but few connect it to its origin – the implosion of the greatest property bubble in history. And it is still unraveling across China, even as the aftershocks reach markets most analysts treat as having independent dynamics. They do not. 

The numbers in Thailand alone are staggering. Up to 1.64 million housing units were unoccupied in 2025, worth around THB 3.45 trillion (US$103.3 billion). That was roughly the country’s annual budget with greater Bangkok holding nearly half of the unoccupied condos. 

Bangkok developers have been warned to hold back supply as absorption falls, with the sell-out period for existing stock now 60 months, a post-pandemic peak. To understand it, you have to go back to the source, or the property machine that ate China.

In the 1990s and 2000s, the Chinese Communist Party decided to make residential property the primary engine of local-government revenue. It fueled GDP growth and household wealth, as well as everything that followed. 

Land sales funded municipal budgets while developer activity inflated GDP. Ordinary Chinese were told property was the only reliable source of value in an economy where the stock market was a casino and capital controls sealed off foreign alternatives.

The pre-sale model – developers collecting deposits to fund construction, delivering later – made the machine run, and made it circular. People bought apartments not to live in but because others were buying. 

Developers became enormous, Chinese local governments became dependent, and banks became exposed. In September 2023, I reported for Radio Free Asia that up to 42,000 local governments were scrambling to pay creditors as the property sector stalled.

At the time, Evergrande chairman Hui Ka Yan, once China’s richest man, was under house arrest. Still, the collapse was not a cyclical event. 

Chronic oversupply

Property development investment fell 10.6% in 2024 and 17.2% a year later. New construction starts dropped a further 20.4% in 2025 and sales by floor area 8.7%. Housing investment halved as a share of China’s gross domestic product, from 12.3% in 2020 to 6.1% in 2025.

The downturn in an industry that once generated a quarter of the country’s GDP is likely to persist, dogged by demographics, dwindling first-time buyers and chronic oversupply, argues George Magnus at Oxford University’s China Centre.

He believes that exports and debt stimulus cannot mask weak consumption indefinitely, and that the reforms to correct the imbalance are not on Beijing’s agenda. 

Carnegie’s Michael Pettis puts the banking dimension plainly: the damage comes not directly but through wealth effects and the hit to banks, and the adjustment is nowhere near complete.

Chinese developers went to Phnom Penh and Bangkok not out of any vision for Southeast Asian urbanization, but because the domestic market was seizing and they needed new ground for the playbook. 

The pre-sale model traveled with them, and local developers, watching land prices and Chinese marketing budgets, launched their own off-plan pipelines, while supply raced ahead of any organic absorption. 

These were, a Natixis study notes, a disguised source of overseas investment already declining as Beijing tightened the taps, but not before the money had already done its work.

Beneath the developer story ran a second, more consequential current. For a certain class of Chinese buyer, Southeast Asian property was not an investment but an escape route – a get-out-of-China card with a sea view. 

Cambodia’s foreign-ownership rules, Thailand’s Elite and Long-Term Resident visas and Malaysia’s My Second Home scheme all made the purchase an exit hatch. 

Regional crisis

The condo mattered less than the money now sitting outside the Chinese financial system, with residency attached if the home deteriorated. 

When the wealth effect collapsed, the buyers stopped coming – and the condo sat in a market with a 30% vacancy overhang and no exit liquidity.

While Bangkok gets the headlines, this was a regional crisis. Chiang Mai’s condo push, marketed to mainland buyers on a northern-Thailand lifestyle story, has lost its demand.

Vientiane in Laos, with no organic high-rise market to speak of, acquired gleaming Chinese-built blocks that stand visibly under-occupied. These are emblematic of a country whose debt dependency on China ties property and infrastructure overextension into one story. 

In Malaysia, Country Garden’s Forest City has been largely deserted since 2016. The BBC has called it Malaysia’s China-built “ghost city.” Now, it is being rebranded as a financial hub – the last refuge of an investment target running out of ideas. And still there is that debt in China.

Yet the question no market has answered is what will be the consequences for local lenders. Thai banks are better regulated than their Cambodian peers, and the Bank of Thailand has been hawkish on mortgage standards. 

But they still lent to Thai developers building for Chinese buyers. When they left, the liveable inventory and the debt did not vanish. 

As for Cambodia, it was more directly exposed after warnings from the national bank about the concentration of property loans back in 2019 and 2020. By then, the horse had bolted. 

Record highs

In Bangkok, domestic mortgage rejection rates hit record highs in 2025, and KKP Research data show the city ended 2024 with roughly 235,000 unsold condos. 

Whether Thai and Cambodian banks are now carrying zombie developer loans – extending and restructuring rather than recognizing losses, as Japanese banks did through the 1990s – is a question answered in regulatory filings and off-record conversations, not press releases.

What is already visible is the human arithmetic. Across China and Southeast Asia, ordinary people cannot afford anywhere decent to live. 

The condos stand empty, the capital that built them has gone, and the gap between a young person’s income and a liveable home has only widened. Capital built the towers. The capital left. The people who were sold the dream remain.

Chris Taylor is senior risk consultant for Access Asia Group, a due diligence consultancy based in Singapore.