China’s Housing Crisis
Everyone has a dream of buying at least one house in their lifetime . The allure of having a permanent roof over one’s head , with four walls to call your own is very appealing . In the illustrious land of China , it is a dream that has already been fulfilled for many households . Almost all of the previous generations have settled down , either nearing the end of their mortgage or outright completely owning the property , with a sizeable chunk in the process of paying for a second .
Being the largest country on earth in terms of population , any major event in China can lead to a dangerous predicament for the world , simply because of the sheer numbers involved . And such a problem has arrived knocking at China’s door .
Chinese real estate developer Evergrande was founded in 1996 , with a vision to expand . They achieved exactly that , with building success upon success , and increasing its reach , both in real estate and other fields , till it was the second largest company in real estate , and was responsible for a noticeable slice of the GDP pie . While their story seems awe-inspiring , the rapid expansion came on the back of heavy borrowing , over the tune of 300 billion dollars . The huge debt finally bit them back , when they could not pay back their dues on time . Evergrande is barely managing to forage and gather money to pay their interests , and many other real estate developers are in a similar , if not as big , of a pickle .
While this is disastrous for the companies , the average man is also hit . Many of the younger generation ( in their 20s or early 30s ) put down payments on houses for which construction had not even begun . Since the Chinese public prefers not to have large amounts of bank debt ( ironic considering the situation ) , they often put down payments ranging to 50 percent of the house’s whole value . This leads to houses’ down payment being borne by not only the future owners but also their families . An intricate and risky situation unique to the Asian countries because of how closely knit Asian families end up when compared to their Western counterparts .
When companies like Evergrande become so big , they carry the livelihoods of not only their employees , but also stakeholders like customers , who have entrusted them with their families’ money to own a house .
With the stage set thus over the years , the theater is falling apart . When the companies fall/ declare bankrupt , they are not able to make the houses , nor be in a state to return the money to the public . This causes a crisis in not only the business sector , but also the normal person working a blue-collar job dreaming to sleep on his own bed someday .
While comparisons have been made to the US housing crisis back in 2008 , the implications here differ . As mentioned before , families as a whole use their savings to prop an owner . This leads to a crash leading to the suffering of the whole family , while in the 2008 , it was only the average borrower , not his family . A real estate crash in China is big for its sheer numbers . The number of people it displaces while also harming the economy of a global superpower is a global event concentrated in one country .
Does this mean a massive crash is incoming ? Not in the near horizon , as the government of China itself is trying to help stabilise Evergrande and other big companies , for their crash spells a massive crash in China’s economy . They are , to echo a term from 2008 , too big to fail . The government itself is trying its best to save the companies .
The whole world should be watching this game closely , as China is on a razor’s edge away from falling into a massive crisis involving its already dwindling millennial population . Whether or not they survive the storm is still up in the air , waiting for the time to arrive when balance tips to a side .
Thank you and have a great week ahead .