China’s real estate industry is collapsing in slow motion.
Large developers such as Evergrande and Country Garden remain stuck in the debt crisis. There are so-called “ghost towns” all over China. And now the International Monetary Fund has just lowered its global growth forecasts for 2024, citing China’s housing crisis as a big reason why.
““It’s important to recognize that there is a longer-term challenge here, and that is that in China we fundamentally have too big a construction sector, we have too big a real estate sector, because the underlying demand for housing is declining,” said Frederic Neumann, HSBC Chief Asia Economist, in an interview with CNBC. “We have slowed urbanization.” We have a declining population.
China’s overall economic recovery after the pandemic has been less than stellar. Youth unemployment is at record levels, gross domestic product forecasts have been cut and the ongoing housing crisis has hit consumer confidence and foreign investment in the country.
Beijing is now trying to ease the pressure on the sector through various policy measures, such as lowering minimum down payments and allowing mortgage interest rates to adjust. However, the spillover effects on the global economy could cause headwinds for years to come, Neumann said.
“China’s shrinking real estate sector will have a truly huge impact on heavy industry and commodity markets worldwide in the coming years,” he said. “There will be lower demand for steel. Less cement will be used – less glass, for example. This impacts the heavy industrial areas in China that actually produce these raw materials.”
Watch the video above to learn more about how the sector will evolve from here.