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China's Property Loss Is India's Gain
About four months ago there was an estimate by S&P global that Chinese banks might face a $350 Bn loss due to the property crisis
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China is undergoing a real estate crisis, which is something we have seen since Covid hit the country. As per some estimates, they have already witnessed a $ 200 Bn loss. The demand for home buyers in China has not kept pace with the supply. Due to these developments property developers are moving to India.
What is happening?
About four months ago there was an estimate by S&P global that Chinese banks might face a $350 Bn loss due to the property crisis. The loans to real estate were exploding and the percentage of bad loans was increasing rapidly. This prophecy has now turned into a reality.
Chinese policies are counter-intuitive to what the world is doing. While all countries are raising their interest rates to beat inflation, China is cutting down its rates which is further pumping liquidity in the economy. They have also loosened the down payment policy. Looking at this situation, Swiss Bank is looking at a low recovery rate of unsecured loans. This issue will continue until the stalled property projects are not completed in China. Earlier in July, 40,000 home buyers in China threatened to boycott mortgage on stalled projects. In the present scenario, banks are set to witness massive losses.
Last week Chinese government itself released data at National Bureau of Statistics for China saying home prices have fallen at the fastest rate in over seven years. The property sales have also reached a 15 month low in October 2022. The report also highlighted that real estate development fell 8.8 per cent compared with the same period in the previous year, revenue from commercial buildings plummeted 26.1 per cent and commercial floor space dropped 22.3 per cent.
Where is the money going?
India is witnessing a rise in property prices, which has been growing steadily in the past few years. The All India Housing Price Index says the real estate sector has grown by 3.5 per cent for Q1 2022-23. Global property firms are looking to expand their footprint outside of China, with India and Vietnam looking to be the future investment destinations. The companies have become vary of putting all the eggs in one basket be it real estate, manufacturing, or energy.
Adding fuel to the fire is China's ‘Zero-Covid’ policy which is further proving to be a deterrent for economic recovery and subsequent real estate development in China. This is the story of Chinese electronic manufacturing sector as well, which is seen in the manufacturing sector as well. The top Chinese stocks have lost about $70 Bn in USA. This situation has given even the less heard of Indian stocks a boost. They can expect major exits and real estate is just a symptom of the wider issue of what is going wrong with the Chinese economy at its core. It is time to re-evaluate zero-covid and interest policies which is so touted by the present government.