Will china's stock market affect the global property market?
Photo: Aaron T Goodman
China's stock market has crashed in the past month, sending a shock wave of financial concern across industries and countries.
The Shanghai Composite and Shenzhen Composite Index were down 32 per cent and 40 per cent respectively this week, prompting trading to be halted in almost 75 per cent of the country's market - a slump that, were it not for the ongoing Greek bailout crisis, may well have dominated business headlines around the world.
Will it affect the global property market?
China has become an increasingly powerful force in international real estate markets.
Financial services company GaveKal recently labelled the stock market as the "plaything" of a limited number of households: "The pain of the crash is affecting probably no more than 20mn to 30mn Chinese households, most of which range from upper middle class to very wealthy."
These, however, are the ones likely to be using their proceeds to spend on overseas property and other sectors. With a deteriorating economy as well, Chinese buyers will be restricted in the ability to continue purchasing property overseas.
In Australia, where China's investment has been held responsible for fuelling rising house prices, experts have highlighted the impact of the stock market crash upon iron ore price, which could have knock-on effects for Oz's housing market.
"Banks have to get their money from somewhere to be able to lend to homebuyers," Lindsay David of LF Economics tells News.com.au. "They’ve absorbed everyone’s deposits — if you put $1 in the bank they go and lend that to someone else. They’ve exhausted that, so they go into the wholesale lending market to acquire more funds.
"Real estate prices in Australia depend more on what some wholesale lender in New York or London is willing to lend than anything else. House prices in Australia are dependent on debt growth, and if there’s no credit out there, house prices will begin to fall."
Canada is another country where China's presence has been noticed by estate agents. Some believe that uncertainty and instability in the stock market could fuel further investment in the country's real estate.
"The Chinese are actually facing a very difficult situation because they don't have the national institutions we have in terms of pensions and employment insurance and health insurance," David Fung, vice-chair of Canada China Business Council, tells CBC.
"In the case of Vancouver, of course we have housing investment... If we do need affordable housing, perhaps we should establish vehicles where the Chinese can invest into affordable housing."
In the US, meanwhile, where China is now the biggest spender on real estate among foreign investors, areas such as Palo Alto and Cupertino, in California's booming Silicon Valley, attract overseas investors thanks to their high quality schools and rising prices.
Agents are now showing signs of concern, with one agent telling Mercury News: "A client who's building a new home in Palo Alto just texted me this morning. They had their preapproved plans but wanted to know should they just sell the lot and not build their new home. They're worried that this steep drop in Chinese equities will impact the value of new construction."
China's stock market, though, is known for its roller coaster performance, with some forecasting this crash to be closer to 1987's mild crash than 1929's Great Depression-causing crisis.
Indeed, today, Chinese shares climbed 5 per cent, following a 6 per cent rebound on Thursday, notes the Economic Times.
The Yuan has strengthened too, thanks to the stock market rally: a weaker currency would also dampen demand from Chinese investors in overseas property.