Housing Sector Risks in China Falling into Bear Market

The residential property prices in China are experiencing meaningful downside, and it may affect the economic growth of the country in the long run.


It is already observed that even after orderly restructuring, China’s real estate market is going to experience downside pressures.


On one side, where authorities are trying to limit the real estate prices due to Evergrande based fire sales, price controls are still not working, even after the implementation of price floors. Note that Evergrande is one of the most indebted developers in the entire world, and the company has yet to reveal whether they paid interest due to holders as per Doller bonds in the United States. The company will get a grace period of 30 days to make payments, following which a technical default may occur.

As per the financial regulations of Beijing, Evergrande is encouraged to consider all possible measures at this point to avoid any default issue on dollar bonds. However, investors are still pricing debt restructuring.


The housing market in China is slowing down, and it is one of the main campaigns that are waged by current president Xi Jinping. He is currently working on reducing the cost of family raising while cutting the leverage within the financial system. However, it is still one of the toughest goals for the government, especially if we consider it vitally important in the economic sector. It is important to mention that industry accounts for approximately 40% of household assets and 30% of gross domestic output.


If we look at the recent data regarding home sales, the value dropped by almost 20% in the month of August. However, the secondary market prices were reduced for the very first time right since February month of the previous year.


The market concerns state that new policies are affecting the real estate market by a considerable level. At present, China needs to find ways to reduce pressure on various indebted developers, and it must be done as soon as possible to avoid the negative impact of pain associated with Evergrande. These efforts are really important to handle the economic crises in the country.


Recent observations reveal that the property curbs account for slowing down the growth in China during the second half of 2021. There is no doubt to say that Beijing has several options to support real estate if required; the action may be too early as per some field experts. Moreover, the professionals in the market state that making changes to previous policies, for instance, loosening restrictions, may not help at the time. This is because of the saturated market and weaker demands. As most people already have multiple residential properties, they are not interested in investing in more.


The fallout is likely to affect the global commodity market along with currencies and emerging-world credit. Experts also have a fear that the slowdown in China may work as a major economic driver in the long run, and it may affect every growth aspect in the country.


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