According to a leading expert on China’s housing market, China’s real-estate sector needs to be “substantially less” in order to sustain a stable and healthy overall economy.

We have taken too much risk. The sector has built too many houses, stabilization must first occur. [from] trimming the sector,” Li Gan, an economics professor at Texas A&M University, told CNBC’s “Street Signs AsiaOn Wednesday.

Gan said that around 20% of China’s housing stock was vacant because buyers are buying second and third homes as investment properties. He said that even then developers still continue to construct millions of units every year.

After years of borrowing excessively, Chinese property developers are experiencing rapid growth. The sector’s problems have been brought to light in recent months. EvergrandeDevelopers missed bond repayments face the threat of defaulting

China’s authorities have intensified their efforts to rein in excesses in the property sectorto curb homebuyer speculation Take measures This includes limiting developers’ excessive borrowing and tightening mortgage lending rules.

Gan said that there are indications of a cooling in China’s housing demand. He is also the director of Survey and Research Center for China Household Finance, which is located at the Southwestern University of Finance and Economics, Chengdu.

For the country to thrive, some of the companies in the realty sector will need to exit the industry, according to Gan. Gan said that Evergrande is only at the beginning of the problem. “Many companies will need to get out of the sector as the demand has slowed down.”

Evergrande is responsible for approximately $300 billion of its liabilities. Concerns about Evergrande’s ability to pay its debts have risen. Global investors were worried about the potential spillover to China’s economy and real estate sector.

CNBC’s Li Daokui said last month that he was an advisor for the People’s Bank of China. Evergrande will likely be “dissolved” into four main groups

China’s new home prices stalled According to Reuters’ calculations, the date is February 2020.  

Reuters reports that September saw an unchanged average in new home prices across 70 Chinese major cities, compared with August. According to Reuters, August saw 0.2% more new home prices than the previous month.  

Gan claimed that home prices could be lower, which would enable consumers to make more purchases and improve the health of the economy. According to Gan, consumption is an important driver. pick up the slack in the Chinese economy.

Gan predicts that China’s contribution to the gross domestic product of China could drop from 30% to 15% in total, with real estate and related sectors contributing around 20% to China’s GDP.

In order to avoid a difficult landing, the Chinese government will be able create a slowdown of the real estate sector.

The professor stated that China cannot use the real estate sector as a way to increase GDP growth.

China’s economy has been hit by a slowing real-estate sector. On Monday, the world’s second-largest economy reported that a disappointing 4.9% expansion in third-quarter GDPCompare that to one year ago.

— CNBC’s Evelyn Cheng and Weizhen Tan contributed to this report.