There are apartments for sale at a real estate office in China.
S&P Global Ratings says that wild swings in Chinese real estate stocks and bonds are keeping investors on edge, and that these news headlines could cause troubles in the sector to spill into the rest of the economy.
The plunge in Evergrande's shares has abated, but the other Chinese real estate companies are still volatile.
Kaisa shares jumped 20% after news that it could stave off default. The developer's bond plunged 30% on the same day, reminiscent of the sell-off in the company's bonds earlier this month.
Charles Chang, senior director and Greater China country lead for corporate ratings at S&P Global Ratings, said in a report earlier this month that headlines can hit sentiment.
Chang said that news reports about defaults could scare away Chinese buyers. Developers, construction companies and other suppliers that work with them would be out of business if demand dried up.
The economists agree that the real estate slump is contained because of a government decision to limit debt in the property industry. In October, the People's Bank of China summed up this view, calling Evergrande a unique case and affirming the overall health of the property sector.
The investors are worried about how Beijing will play out. The news of the default of a far smaller developer, Fantasia, and growing financing troubles among other developers began to add to the sell-off.
I am not sure if the regulators and authorities understand the damage this does to the offshore market.
The Markit iBoxx index for China high yield real estate bonds is still up for the month of October, despite a drop of 18% in October and an almost 11% fall in September.
"It's a really trying time for investors right now, probably more for bond investors than equity investors, because what we're really watching is a policy transition unfolding in real time."
China's system tends to rely more on broad government statements and cautious corporate disclosures, which is worse for foreign institutional investors.
This lack of clarity has been an issue for a long time.
James said she learned about how companies were doing through news reports days or weeks after the sell-off. These include meetings with the government.
James said that he was not certain that the regulators and authorities understood the damage this did to the offshore market.
Rhodium Group pointed out in a note on Tuesday that the lack of clarity made the situation worse.
Analysts at Rhodium Group said that the most significant policy signal was the lack of a clear decision on what concrete action to take to resolve Evergrande's situation.
The officials underestimated the severity of the problem, made confusing pledges to prevent a full reckoning, and claimed that the initial policy disciplines that precipitated the property stress had been misinterpreted.
They said that if the government intended to build confidence in the direction of financial reform, the outcome has been the opposite.
When investors were left in the dark, they would rather sell than stay invested.
The problem is when the market impact has gone far beyond what anyone would have expected, and you have to ask what the macro impact is. Jim Veneau, head of fixed income, Asia, told CNBC earlier this month.
The consequences can be significant.
About 25% of China's economy is related to real estate and industries.
Property is the majority of household wealth.
85% of local governments revenue comes from selling residential land.
Rhodium Group says that land sales to developers are critical for local governments since they can't generate enough revenue from taxes to pay for all their expenses.
Negative investor sentiment makes it harder for real estate companies to get financing, so developers will not want to buy as much land. Chinese real estate companies rely on sufficient financing to make sure consumers get the apartments they paid for.
Chinese developers relied on the offshore bond market more than other industries because it gave them access to foreign investors.
The channel of financing dried up as the negative sentiment around the real estate companies increased due to concerns that Evergrande might default.
The number of Chinese real estate high-yield bond deals plummeted in October to just two deals worth $352 million. The data showed that the September and January deals had a high of 29 and $8.5 billion, respectively.
Property developers have a difficult time getting capital on the mainland due to the tight financing conditions.
James said that a lot of easy things can happen through messaging. Someone can say that this is a very important part of our economy and we will always be supportive.
The real estate market in China remains healthy according to the latest messages from the People's Bank of China.
The chief China economist at Nomura is not expecting a change in the property curbs until at least the spring.
CNBC's Weizhen Tan contributed to the report.
