Should we LBO Chinas Real Estate Market?

Likely no:

Evergrande and the wider housing market seems like it's been a government-controlled implosion, and the government is bailing them out in a way. A lot of SOEs have been purchasing Evergrande and other developers' assets for cents on the dollar, which is their way in both minimizing the impact on consumers (letting other developers, SOEs, and even local governments take over and finish all the unfinished projects), accomplishing the government's political goals of increasing state-control on the housing market and reducing private-developer-led housing speculation, and providing a crucial source of cash for developers to pay off its obligations to domestic debtholders.

That being said, I don't think the government would allow too much PE cash in. The entire Evergrande/property-developer crash was government engineered. Basically, Evergrande and other property developers are in trouble because the lines of credit that allowed them to sustain their overleveraged model dried up suddenly, which was definitely by design. In 2020, the government released the "three red lines" guidance for property developers to reduce their leverage, which led to many but not all property developers starting to reduce their leverage. The biggest exception was Evergrande, and the Chinese government decided to make an example out of them. Evergrande's famous Xu Jiayin resigned the same day as Xi's common prosperity speech on August 17, and literally 2 days later, the PBOC and Banking and Insurance Regulatory Commission called Evergrande management down to their offices. Providers of credit saw the writing on the wall and stopped extending credit to Evergrande. All of the government's signaling towards the property developers was essentially confirmed to the public when the Ministry of Housing afffirmed that "housing is for living, not for speculating", on August 31st, and then Evergrande's issues made it to the headlines.

In a word, Evergrande's problems are by design. The government did not "let this happen" so much as they are actually facilitating this process, and I highly doubt the government wants private investors into the very housing market they've been trying to de-commercialize.