Bigger Pockets: Is the Global Economy About to Collapse? Inside China’s Real Estate Crisis
It’s been nearly a year since investors were made aware of the potential implosion of Evergrande. The Chinese-based real estate developer looked likely to default on its loans. In so doing, it could have left note holders on the hook to pay mortgages on unfinished properties.
While some time has passed, China’s real estate market has yet to improve. And with the global economy looking less strong than a year ago, there could be danger ahead for global markets.
As Western nations look to raise interest rates to rein in inflation, China has cut interest rates in August to encourage borrowing. However, with many localities subject to sudden and strict Covid lockdowns, uncertainty remains high.
That’s been devastating for local governments in China. City governments earn nearly half of their revenue from real-estate activity such as land-transfer fees. This slowdown in real estate is impacting the country’s economy in multiple ways.
With 78 percent of household wealth in the country tied to real estate, it’s clear that consumer demand in China is set to drop as real estate remains an out-of-favor investment. But the slowdown won’t stop there.
China is the second largest economy in the world. And with 18.6 percent of imports from China going to the US, any financial hardship in the country could lead to a slowdown anywhere in the world, even the US.