It is anticipated that China’s real estate problems will remain to impede economic growth. The World Bank announced on Sunday, October 1, that its estimates for the second-largest economy’s 2024 gross domestic product ( GDP ) growth had been reduced from their previous 4.8 percent to 4.4 percent.
The banks cited longer-term fundamental factors as well as increased debt and failure in the real estate market as major drivers of this change.
HOW HAS THE Business BEEN AFFECTED BY THE PROPERTY DOWNTURN?
Despite decades of rapid development leaving these areas with hills of debt, investment in infrastructure and real estate has been a major factor in China’s GDP growth.
According to the World Bank, China’s overall private non-financial debt-to-GDP amount has more than doubled from 13 % in 2007 to 285 percent in 2023.
Private developers & nbsp started defaulting on their debt in the middle of 2021 as a result of Chinese regulators’ fervent efforts to deleverage and reform the real estate industry, which resulted in numerous unfinished homes, suppliers, and creditors with unpaid accounts.
In addition to making up about a third of China’s GDP, home makes up 65 % of all household goods.
Since 2021, housing costs in less developed cities have decreased by more than 20 %, which has a negative impact on consumer and business confidence.
ARE THE Structural EFFECTS OF THE PROPERTY CRISIS?
According to Oxford Economics, Chinese lending to house developers accounts for just over 5 % of all loans issued by onshore businesses. Smaller regional banks’ non-performing loan ratios, however, may worsen as a result of increased exposure to the real estate market and local government financing vehicles ( LGFVs ).
LGFVs, which are composite public-corporate institutions, were established to get around regional government borrowing restrictions. Since the global financial crisis in 2008, they have multiplied.