China’s real estate bubble burst in 2023, and it is doing more damage than official data suggests [1]. The bursting of the Chinese property bubble has created a bigger problem, as the fallout from debt-laden developers and sinking sales spreads [4]. The real estate sector is a systemic problem, and until it is addressed and resolved, there can be no permanent stabilization of China’s property market or its economy more generally [6]. The slower pace of home sales meant less cash flow for China’s highly leveraged real estate developers, like Evergrande, setting the stage for a crisis [2].
Maintaining a healthy housing market is crucial for China, as it represents the most important asset for Chinese households [2]. A PBoC survey of urban households conducted in 2019 revealed that the value of housing composed 59 percent of households’ total assets, while mortgage loans stood at 12 percent of total assets [2]. These figures are similar to the United States in 2008 on the eve of the subprime mortgage crisis and Japan in the 1980s before its real estate bubble burst [2].
The fallout from China’s real estate crisis is spreading, and home prices are falling, developers are defaulting, and people are angry [5]. However, China’s crash is unlikely to hurt the global economy much [3]. Lower prices put more pressure on real estate companies and also on the Chinese economy, but it is unlikely to cause a global financial crisis [3].
China’s real estate bubble burst in 2023, and it is doing more damage than official data suggests. The real estate sector is a systemic problem, and until it is addressed and resolved, there can be no permanent stabilization of China’s property market or its economy more generally. Maintaining a healthy housing market is crucial for China, as it represents the most important asset for Chinese households. The fallout from China’s real estate crisis is spreading, but it is unlikely to cause a global financial crisis.
Citations:
[1] https://fortune.com/2023/08/17/china-home-sales-worse-than-official-data-real-estate-crisis/
[2] https://www.cfr.org/blog/pboc-props-chinas-housing-market
[3] https://www.noahpinion.blog/p/chinas-crash-is-unlikely-to-hurt
[4] https://www.nytimes.com/2023/08/20/business/china-property-crisis-country-garden.html
[5] https://www.bloomberg.com/news/articles/2023-09-14/china-economic-crisis-2023-what-real-estate-market-collapse-means-for-world
[6] https://carnegieendowment.org/chinafinancialmarkets/87751
