Is the Chinese Housing Market a Cause for Concern?
This question might seem like a strange one on paper. Why should you worry about the housing market on the other side of the world? Simply put, the Chinese housing market is too big to not affect the rest of the world should something bad happen.
With a notional value of between $55tn (£47tn) and $60tn according to the Guardian, the Chinese housing market is the largest asset class in the world, bigger than the entire US Stock Market combined. It makes up a third of China’s economic output.
Therefore a market of this size crashing will affect the global housing market. It is too big to crash without note. The real question you need to be asking – how badly will it be affected?
If you are looking for information on why the Chinese housing market might crash, and how it will affect the global housing market as well as the UK, then read on for all the information you need.
Why Might the Chinese Housing Market Crash in 2022?
A combination of factors is leading industry experts to predict the Chinese housing market might crash in 2022. China has draconic zero-COVID policies of repeated lockdowns that have impacted people’s incomes and, therefore, their savings and investments.
Combine this with an extreme heatwave in China that is slowing food and power supply lines, and there is a recipe for potential disaster brewing in China’s housing market.
There has also been reckless lending in the housing market, which has caused reports of Chinese homeowners revolting by refusing to pay their mortgages. This is because construction is stalling on new homes, leaving them stranded.
Pre-sales like these, where homeowners buy property before it is finished, make up between 70-80% of house sales in China, so a mortgage revolt like this could be disastrous.
Already, there is a 40% fall in the sale of homes this year, with some estimates putting this fall as high as 70% for specific companies.
The Chinese government has tried to combat this through methods like slashing interest rates on mortgages twice this year, as well as issuing $148bn in loans to property developers as a short-term bailout. However, this could cause more problems long term as it means the Government is propping up a failing market.
All these signs are pointing to the housing market careening towards a crash.
How Would the Chinese Housing Market Crashing Affect The Global Housing Market?
The last time a housing market of similar size collapsed was in 2008 when the US housing market crashed due to high-risk lendees defaulting on mortgage payments. This rippled across the Atlantic due to large numbers of European investors in these mortgages.
This partially caused a global recession which took years to recover from, the worst on record of the 21st century.
Ironically enough, one of the largest bailouts for the world economy came from China. The Chinese government injected a stimulus of 4 trillion yuan which helped to stabilise the crashing markets.
It is unlikely that the Chinese housing market will collapse that badly, however, and that a crash will have such a catastrophic effect on the global market. This is because there is far less foreign investment in the Chinese housing market, so there will not be such a damaging ripple effect should it crash.
However, China is still one of the world’s largest economies. If such a large portion of it were to weaken, this would probably hit China’s main trading partners overseas reasonably hard.
Industry experts have estimated that China has accounted for around 30% of the global economy over the past decade. This indicates that the housing market collapsing would have some impact on the global market, if not as bad as what we have seen in the past.
How Would the Chinese Housing Market Crashing Affect the UK Housing Market?
Unlike countries such as the US and South Korea, the UK is not one of China’s main trading partners. Therefore, the UK housing market is not likely to be as affected if the Chinese housing market does collapse.
However, it will still be affected due to the number of Chinese investors in the UK housing market. Ever since Brexit, the number of Chinese investors has risen by considerable amounts.
Between 2013 and 2019, there was a rise of over 10% in the number of mainland Chinese investors accounting for purchases of properties worth over £1 million. Three areas of London (Kensington, Chelsea and Westminster) saw Chinese investors bring over £500 million worth into the country in 2019 alone.
If there is instability back home, this may cause a decrease in the number of Chinese investors. Due to repeated COVID lockdowns, the Chinese economy is tighter in general, and a decrease in investors is expected. Therefore, we can expect less money coming in from China, which may have an impact on more expensive property markets such as London.
However, this void that could potentially be created in the coming months from Chinese investors pulling out creates opportunities for other investors to branch out their portfolios. We could see more foreign investors coming into the UK, making the most of the weakness in the pound right now.
A gap in the market is one waiting to be filled, and this is an opportunity that investors should be looking to spring on if and when the time comes to make the most of it.
Disclaimer: This content was originally written in September 2022. By the time you read it, some of the statistics used may have changed.
For the latest on the UK property market in 2023, take a look at our updated guide to Foreign Investment in the UK.