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China Property Crisis Uncovered: What Investors Need to Know

Unfinished high-rise property development in Chongqing, Chongqing, China

World leaders and major economies have been facing economic headwinds for a while now. To make things worse, the years-long China property crisis caused by one of its national house builders continues to cause its government trouble.

The global impact has been fairly limited so far, as most property investors will be aware of. The wider investment market in the West hasn’t experienced real ripple effects from China’s property crisis as of yet.

But this begs the question, will it have an effect eventually on the wider investment market in the West and how would it look?

The Chinese property crisis explained

The Chinese property market is in turmoil. This turmoil has sent shockwaves through the nation’s economy, and the shockwaves have been echoing across the market. China had a reputation for being a reliable engine for economic growth, but recent events have cast doubt here.

Prominent real estate developers are now teetering on the brink. They are grappling with substantial losses, overwhelming debt, and missed payments to creditors. China’s building boom, which boosted its economic expansion, has now slowed, putting the country’s economic strength at major risk. China’s financial markets have faced a downturn with its currency (yuan renminbi) weakened by government efforts to boost growth.

So, what is currently happening with the real estate market in China, and how is it impacting the nation’s economy at large? For many years, China’s economic vitality relied significantly on a strong property investment sector driven by its population growth. The housing market not only created jobs but also protected the wealth of China’s growing middle class. Local governments relied on revenue produced from land sales to fund their operations.

China’s population is no longer expanding at the rate that it used to. Strict COVID-19 measures and government crackdowns against risky industry practices have led to real estate developers drowning in debt. This is because there is an excess of housing units with a lack of buyers. Consequently, home prices have plummeted, thus eroding the savings and confidence of Chinese households.

The crisis is unfolding on a massive scale. Chinese developers now owe a significant amount estimated at $390 billion in unpaid bills. The situation now poses a major problem for the country’s economy. Economists have lowered growth predictions, with many expecting rates below the Chinese government’s target of around 5%.

An increase in UK property investment

China will not resolve the crisis quickly. In accordance with recent developments in the market, Chinese and foreign investors leveraged there are now seeking other options.

The property market in the West is not growing as fast as it did pre-pandemic. However, not many people expected it to do so anyway. This has been largely down to government incentives and pent-up demand.

Rental prices in the UK are increasing rapidly, however, meaning rental yields have been extremely healthy. Property prices have also been stable and growing steadily in most places. This has prompted activity in the market from buyers looking to increase their property portfolio, with a trend developing for buyers and sellers to invest in the UK.

Inward investment in UK property, including off-plan, is becoming more popular in the UK. Foreign investors are turning away from the Chinese market for a source of rental income and they are viewing property in the UK as a profitable, reliable market to compensate for the issues abroad.

If you’re interested in investing in prime UK property then why not get in touch with us today?

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