China’s Housing Crisis

As a property owner myself, I tend to listen in to news about the housing market. Real estate is a vital part of the economy. It drives the building of infrastructures, creates plenty of job opportunities, as well as promote the development of communities. All of which helps boost economic growth.

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Read about my article on China’s race to supremacy on CBDC

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Evergrande, the biggest property developer in China, has been making headlines for the past couple of years. News of trouble broke out in 2021 when the property giant failed to make payments and defaulted. It is reported that they have over $300bn in debt liabilities. And just recently filed for US bankruptcy protection as part of debt restructuring.

I’ve mentioned in the past that Evergrande’s fall is just the tip of the iceberg. And when one of the biggest companies in the globe falls, you can expect that the whole world is watching. News like this rattles markets from all over and pushes for a market sell off to get out before it is too late. Since then many other land development companies have also crashed.

There are some companies that are too big to fail. It was expected that Beijing could possibly rescue Evergrande’s sinking ship and bail the company out. However this proved to be too expensive and will be too costly for the government and its citizens. And as some analysts agree, there are signs that the entire housing sector in China is in crisis.

This collapse is for the most part self-inflicted. The government for at least a decade loosely regulated borrowing and allowed so much debt to be taken by developers. This helped fuel immense growth. However they drastically stepped in cutting the flow of cheap money leaving companies short on cash.

Now, sales have plummeted, there’s lack of investor trust. Households are wary of spending hard earned money on housing in fears that they won’t be able to handle interest rates and/or move in to an unfinished property unfit for human living. Consumer confidence is at an all time low.

More than 40% of home sales have defaulted. And the worse may not be over yet as another big company Country Garden could also default. They already issued a statement saying they would do everything they can in order to save the company. Needless to say this would significantly slow down economic growth. No economic stimulus is foreseen to be given as well.

In years to come, it is expected for the housing market to become stabilized. It is nowhere near in sight and government intervention is needed. Stimulus and debt relief programs can help speed things up back to green. Confidence in the housing market will return back to normal and policies and regulations should be further improved in order to avoid another crisis like this. As Beijing has reiterated: Homes are for living and not for speculation.

2008’s global financial crisis and recession also involved real estate and the housing market as a major contributing factor. The suddenand sharp increase in interest rates burst the bubble causing the economy to collapse.

It is always sad to hear news of people losing their homes. I could only wish that world leaders and people in authority will prioritize their people first. Ahead of personal gains and self serving interests. But there’s one good thing I believe in. Tough times don’t last tough people do. Those who are brave enough will endure.

Posted Using LeoFinance Alpha