T
totallyproperty
Administrator
Staff member
For some time now the Chinese real estate market has been powering the Chinese economy and indeed Chinese investors in markets such as London have been pushing real estate prices to new highs. There was growing concern that the domestic Chinese real estate market was struggling, would wobble if credit curbs were introduced and there has been speculation that the Chinese authorities have been looking to dumb down the property market for some time. Today's confirmation that Xingrun Properties, one of China's largest real estate companies, is on the verge of bankruptcy and set to default on $570 million of bank debt has shaken the sector to its foundations.
This is by far and away the largest Chinese property default in many years and there are growing concerns of ghost towns across the country. A working group has been set up to try to contain the crisis but this is more than a crisis of credit and is fast turning into a crisis of confidence.
What does this mean for 2014?
There have been rumours of "ghost towns" for some time now and these rumours are certainly turning into reality. There is ongoing speculation that developers are leaving behind half built property projects because of a lack of demand with investors struggling to raise funds. Those who suggest this is a "sudden development" are perhaps looking at the situation through rose tinted glasses because the Chinese real estate market has been pushing to unsustainable levels for some time. Indeed the authorities have tried on numerous occasions to reign in over enthusiastic investment in the Chinese real estate market but to no avail.
As more and more property developers experience financial difficulties, demand for Chinese property collapses and the sector goes into freefall, this will have a dramatic effect on the Chinese economy. Is this containable within China?
Overseas real estate markets
As we touched on above, many Chinese investors have been looking overseas towards the London real estate market, the Spanish real estate market and other areas offering "value". As and when these domestic investors feel the pinch back home in China there is a real chance that they will look to repatriate some of their investments. This could temporarily halt the ever rising growth in property prices in place such as London and indeed could prompt some profit-taking from investors who have made significant gains over the last couple of years.
This was always a danger for overseas property markets, a growing dependence upon investors from China who have benefited from the financial growth of recent years. In the background there was always the niggling concern that the Chinese authorities were looking to reign in speculative property investment in the country and a number of light touch efforts to do this certainly failed dramatically. It was only a matter of time before the Chinese authorities would eventually clampdown on credit lines although whether they quite predicted such a high-profile collapse as that seen by Xingrun Properties is debatable.
Could this be the end of the Chinese property market boom or is it just a consolidation phase setting further ground work for the future?
This is by far and away the largest Chinese property default in many years and there are growing concerns of ghost towns across the country. A working group has been set up to try to contain the crisis but this is more than a crisis of credit and is fast turning into a crisis of confidence.
What does this mean for 2014?
There have been rumours of "ghost towns" for some time now and these rumours are certainly turning into reality. There is ongoing speculation that developers are leaving behind half built property projects because of a lack of demand with investors struggling to raise funds. Those who suggest this is a "sudden development" are perhaps looking at the situation through rose tinted glasses because the Chinese real estate market has been pushing to unsustainable levels for some time. Indeed the authorities have tried on numerous occasions to reign in over enthusiastic investment in the Chinese real estate market but to no avail.
As more and more property developers experience financial difficulties, demand for Chinese property collapses and the sector goes into freefall, this will have a dramatic effect on the Chinese economy. Is this containable within China?
Overseas real estate markets
As we touched on above, many Chinese investors have been looking overseas towards the London real estate market, the Spanish real estate market and other areas offering "value". As and when these domestic investors feel the pinch back home in China there is a real chance that they will look to repatriate some of their investments. This could temporarily halt the ever rising growth in property prices in place such as London and indeed could prompt some profit-taking from investors who have made significant gains over the last couple of years.
This was always a danger for overseas property markets, a growing dependence upon investors from China who have benefited from the financial growth of recent years. In the background there was always the niggling concern that the Chinese authorities were looking to reign in speculative property investment in the country and a number of light touch efforts to do this certainly failed dramatically. It was only a matter of time before the Chinese authorities would eventually clampdown on credit lines although whether they quite predicted such a high-profile collapse as that seen by Xingrun Properties is debatable.
Could this be the end of the Chinese property market boom or is it just a consolidation phase setting further ground work for the future?
