Because there was a demand from many people moving into the core cities and Chinese people value owning your own house as a status symbol and to marry (can't marry without a house). As well even up to now the previous homebuyer generation (people who should be 50 to 60 now) can still pay for the prices due to the sudden increase in normal people's wealth and deep savings.

However after a while many people caught on and it turned into speculation with people randomly buying housing and increasing the price sorely for property investing. As well the previous generation have more money and income and could pay, the current generation of homebuyers (25 to 35) are still either too young or not as wealthy as the previous which is hurting demand, moreover the excess speculation and the extreme prices for even the previous homebuyer generation have scared off many buyers.

As well, note that in reality only core city prices are insane such as Beijing, Shanghai, Chongqing, Guangzhou area. Places with not a lot of people, the property prices there are just around inflation prices.

Note that I speak from personal experience from Chinese property investing. As well China is so big that any generalization is flawed so note that too.