The Chinese stock market recorded a loss of over $3.2 trillion over last few weeks. The figure is larger than the economy of India, the UK, Russia, and several other major global economies. It is still being speculated how this and the upcoming bubble burst is going to affect India and other parts of the world?
The falling Chinese property market
The Chinese real estate market is a behemoth $1.30 trillion in size. In the words of China’s largest real estate developer, China Vanke, the ‘golden era’ in its housing market has come to an end. If there is one thing every analyst is agreeing upon, it is that a Chinese economic crash can create a domino effect on the world’s economy – leading to a big global economic crash.
According to the guardian, a global recession is just around the corner, and the Chinese meltdown is going to play a big role in it. What will be bad for the global economy is that the previous economic recession hasn’t yet ended. The world is still recovering from it.
There had been strong assumptions over the last 5 years about the Chinese real estate market entering recession, but it had been delayed due to government measures. According to a recent report in the financial times, the Chinese property downturn has in fact come at an even worse time – when there is a weaker global real estate market.
US Market
The Chinese meltdown is highly likely to affect high-end residential market and activity in the U.S. Especially, hot real estate destinations in the country, like Miami will be adversely affected. It is worth noting that cities like Miami have over 80% of their buyers from outside the country and they have real estate supplies which are older than 10 years.
The Australian market
The impact of a Chinese slowdown on Australian economy and real estate market is going to be big and reasonable. In fact, the Australian economy could lose around 1% of its overall GDP growth rate.
Impact on Indian market
The impact on the Indian realty market is seen as something positive as far as construction of new properties is seen. Consumers will find falling aluminium, copper and other construction material prices to be beneficial for them. While Chinese companies will resort to aggressive selling tactics to clear off their inventory, Indian real estate consumers and real estate agents in noida and other major cities are likely to make the gains.
Indian realty has especially undergone a changeover as consumers are now allowed to buy properties online. Tata Housing for example has embraced internet technology and integrated its application in the real estate market by allowing online purchase and financing.
Impact on China itself
Overall, it is seen that the Chinese economic meltdown is something that the country could get through. But it will be its population and the global market that will bear the brunt. The deterioration in the real estate market in China itself fills put a big question mark on its leadership and its economic strategy.
The country has long been mocked for pursuing excessively fast growth rate that is miles off the ground reality. Its realty growth has often been pegged to bridges that lead to nowhere and magnificent cities without any people living in them! The effect of the meltdown, which has started, is going to create inefficient residential markets and further declining consumption.
Conclusion
China has long driven an economy based on government backed credit system supported by low interest rates. Every time a downturn seemed evident, the government injected more money into its banks and expanded the existing credit system. Time has come when the largest credit bubble in history has reached unprecedented size, and no further efforts by the government can prevent it from bursting. It is also the right time for real estate investors and consumers in India to explore their options, as prices are likely to move in their favor.
Nisha Pandey
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Nice article on real estate economics.