The real estate volcano, which has been smoldering for several months, has reached an explosive state and is taking a breather in the Chinese economy. All those who invested in real estate believing that it is the best investment to grow their savings, are worried and worried coming from China. With many banks not returning depositors’ money, the real estate crisis looming, and the government cracking down on protests, the Chinese people are on the brink of the Covid pandemic.
What caused the crisis?
About 85 percent of houses in China are sold before construction is completed. That is, the loans will start months or even years before the buildings are completed. Since 2020, construction activities in the real estate sector have slowed down, making it difficult to deliver houses to customers on time. Initially 30 projects had problems and later it reached 300. With the developers running out of money, even a single project could not go ahead.
Consumers defaulted on loan repayments as they did not get their houses on time despite months of payments. This exacerbated the crisis. Meanwhile, in 2021, the government itself had demolished many buildings. Many developers went bankrupt due to this action of the government. The demolition of many skyscrapers built without construction permits in China has caused a huge financial burden for companies such as Evergrande. For giant companies such as Evergrande, the inability to pay loan interest on time and the failure of international bond payments have added to the momentum of the problems.
Similar to things in India?
In many cities of India, especially in Kochi, Trivandrum and Kozhikode, many flat owners have not handed over their flats for years after receiving advance payment from customers. Home loan customers have to pay a hefty EMI in addition to the rent of the house they are currently living in. Such flat owners are ruining all the dreams of ordinary people who live on monthly salary. Although the ‘Rera’ Act was passed to protect the interests of consumers and bring transparency in transactions, it does not fix things. According to the latest figures, lakhs of flats remain unsold in Indian metro cities. Meanwhile, the prices of houses and offices are increasing. Flat prices in metro cities like Mumbai, Delhi and Chennai are unaffordable for the common man. Poorly constructed shacks and housing loans that last for years are common in India. Economists are warning that the Indian real estate bubble could burst at any time due to many reasons like this.
The global economic recession of 2008 began in the United States with a real estate crisis. Likewise, will the Chinese real estate crisis fuel this year’s recession? If things in India continue like this, will India be the stage for the next economic recession?
English Summary : What is Happening in Real Estate Crisis in China and India