honey The Chinese property market is in distress. Real estate prices have begun to plummet back to earth after skyrocketing in recent decades. The worry now is that falling property values may drag down the world’s second-largest economy with them.
In the Bloomberg Originals mini-documentary China’s Property Meltdown, we look at how this upheaval began and what the repercussions for the global economy could be.
Basic supply and demand drove China’s real estate boom. When the country’s leaders reopened the economy to foreign investors and private firms four decades ago, millions of people fled the countryside for manufacturing work in China’s cities.
This unleashed housing demand, resulting in a building boom that, at its peak, saw housing and related industries account for up to a quarter of China’s economy.
However, the purpose of real estate began to shift along the way. People came to believe that because housing values had always risen, they would continue to do so. As a result, an increasing number of Chinese are purchasing homes to invest their savings rather than to live in. Rising housing prices exacerbated another issue by widening the wealth divide between those who owned and those who did not.
These were reasons to act for President Xi Jinping, who has stated that he wants to establish “common prosperity” through closing the gulf.
When Xi announced his intention to tighten property regulations, he triggered a series of events that has become a significant drag on GDP and a big challenge to his government. Home prices began to decline, developers began to default, and consumers became enraged. The question today is whether authorities can act swiftly enough to prevent property troubles from escalating into a larger crisis for the financial system, Chinese society as a whole, and possibly the entire world.
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