Chinese Real Estate in Dire Straits

The Chinese economy has been in trouble for an awfully long and ominously long amount of time. The Chinese economy has begun to serve as a sign of caution to a lot of neighboring nations in the South Asian sub-continent as well. Even though the Chinese government has taken absolute control of the economy and has clamped down harshly on liquidity withdrawal, the nation’s overall economy doesn’t seem to be doing that much better. The central bank of the Chinese government has also slashed interest rates drastically in order to stimulate public and private spending of the nation. While all that has begun, the growth rate has been nominal.

Interest rate cut

The slash in interest rates have been able to temporarily placate the situation, but not really solve the problem. The national economy is still struggling for a unilateral and absolute answer. Many claim that the move by the government may work to weaken the economy as it will sustain an ill-maintenance of the economy, while not really allowing the country to bounce back. The country’s real estate market was also drastically hit by the sudden economic crisis. There seemed to have been a massive shut in unsold real estate property of the nation. The reduced interest rates have now allowed many people to buy up real estate in order to stabilize a similar situation of empty real estate like what happened in Dubai.

A dichotomy

While the sales have surged and the sector sales has been growing at the rate of 61 percent, economists and credit rating agencies are extremely flexible. In any economy a sudden frenzy in either the direction of growth or recession is a negative sign. The world’s top credit rating agencies like Fitch, Moody’s and S&P have both ranked a bad credit rating for the Chinese real estate market despite the growth. A fundamental problem is that the investment required to build the property was at a much higher rate than its selling price. This would mean that real estate developers would need to sell a larger amount of properties in order to ensure that they make adequate amounts of revenues in order to pay off their creditors. This quandary may drive down the actual market growth rate to single digit figures. This makes for a very fragile situation in the national economy of China.

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