Experts now warn that China's property market is beginning to collapse. If they're right, it will send shock waves around the world.
According to Bloomberg, Harvard University professor and former chief economist of the International Monetary Fund Kenneth Rogoff says China's property market is showing all signs of falling apart following the Chinese government's crackdown on property speculation. It will hit banks worldwide. "You're starting to see that collapse in property and it's going to hit the banking system," Rogoff says.
All this coincides with a report from Standard Chartered Bank, reported here, which says that real estate prices in China's biggest cities could plummet 20% to 30% by year's end. The Wall Street Journal reports that Chinese property prices will fall dramatically over the next few months.
The shock waves will flow through to the global economy. If housing prices in China collapse, there will be less demand for foreign goods. Also, let's remember that construction activity uses lots of steel, oil and other basic materials. A collapse in the China property market will hurt worldwide demand for commodities. And that will hurt economies around the world.
There seems to a slowdown in the increase of property prices according to recent articles. Is a good sign or a sign of bad things to come?
People state that most of China’s property market runs on equity rather than debt. Some say 75%-90% is equity. Also the common practice of construction companies is to sell property before the construction activity even starts. In view of the above, do you think a burst in the property bubble will impact the banks and financial institutions in China? I mean apart from a fall in demand of commodities, will there be other negative fallouts for the financial system as a whole?