News Analysis As China’s real estate crisis spreads, home sales fell sharply in October, and prices fell for the first time in six years. Many of China’s biggest developers are unable to make debt payments, leaving projects unfinished and creating a liquidity crisis throughout the sector. How did the largest real estate market in the world come unraveled? It began in August 2020, when the Chinese government announced a new policy to control the debt in the real estate sector. Known as the “three red lines”, these rules limit the amount of debt a company can take on. They include keeping the liability to asset ratio below 0.7, the debt to equity below 1.0, and a cash-on-hand to short-term borrowing ratio above 1.0. Half of China’s 30 largest developers have already crossed the “three red lines”, according to an Oct. 8 analysis by the Financial Times. These real estate giants, …