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Has the bubble burst? – A deep dive into the causes of the current real estate crisis in China

A contentious debate among global economists has been the rapidly diminishing value of property in urban and suburban China. China’s housing market is the most valuable property market in the world and the empire that is mainland China is responsible for many of the most expensive real estate listings in the world. An upward spiral of property values during the 2010s is currently being juxtaposed with crashing property listings as whole apartment blocks lie empty and unused. The reasons for such, mainly relating to a decrease in fiscal bailout by the Chinese government and the massive overestimation of consumer’s financial viability. But how has this real estate superpower been delt such a blow?

The first issue relates to producer misinformation. Some of the most dominant firms in the market have been overspending and overbuilding in the assumption of mass consumer demand post the Covid-19 pandemic. What has not been taken into account is the spending and investment limitations consumers are confined to by the Chinese government. This has created an excess supply in the market as companies such as Evergrande and China Vanke increase spend (and most concerningly debt) to fund megaprojects. Secondly, the unforeseen Chinese economic recession that was 2023. After strong starts to the year in the UK and US markets, investors soured into China with expectations it would follow suit. This however was not that case. Unusually high youth unemployment statistics and blurry fiscal objectives cause speculation and a resulting decrease in investment confidence.

The result of these economic predicaments has been interesting in and of itself. Historically, the Chinese government tends to operate with a socialistic approach to business stability. Meaning, it would offer support to companies who it thought would benefit the Chinese public. Interestingly enough, (and yet another reason for investor reluctancy) the government decided to let some of the market’s biggest company’s default and dissolve. A short-term nightmare for the market, yet with a long-term goal of returning to the real estate supremacy seen in the last decade.

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