Chinese real estate in dire straits

by Ephraim Vecina23 Feb 2016
Approximately half of the economic slowdown experienced by China since 2010 can be attributed to a significant drop in home construction, in turn contributing to a supply deluge that is threatening to upset prices and further unbalance the country’s already-struggling real estate markets.
These according to a Standard Chartered report released in November 2015, which noted that housing starts have dropped by a crippling 29% over the last two years. The study also linked the construction crisis to current overcapacity in the cement, glass, and steel manufacturing sectors.
The Chinese National Bureau of Statistics corroborated these developments, with 2015 seeing only 1% growth in real estate development investments in China, along with a meager 0.4% increase in residential real estate investments.
A New York Times report added that by the end of 2016, approximately 22% of the estimated $30 trillion total in credit would be non-performing loans—those that would pay late or unable to pay at all.
Together, these signs point to unsustainable credit growth in a volatile environment characterized by oversupply and zero profitability, which has led to finance officials contemplating even the possibility of a far-reaching meltdown.
“[W]e’ve learned lessons from the global financial crisis, which started from the 2008 subprime crisis in the US, that the cross-contagion between the real estate market, the subprime market and shadow banking system in the US produced disastrous impacts. There is also the soil for such contagion in China,” People’s Bank of China governor Zhou Xiaochuan told Caixin Weekly, as quoted by