Macroscope | China can absorb its property crisis. Can the US and Europe say the same for theirs?
- The US, the largest commercial property market in the world, has seen prices tumble since the Federal Reserve started raising interest rates
- The knock-on impact of falling property prices on the banking system, securities markets and real economy could be serious, and reverberate into international financial markets
As the International Monetary Fund (IMF) noted in a blog post on January 18, which attracted little attention compared to blanket coverage of China’s problems, the commercial real estate sector generally “has been under intense pressure as interest rates have risen over the past couple of years”. Other sources note trouble in European housing markets.
This is not to suggest that China’s property problems are not serious; they are. But what is regrettable is many commentators’ lack of perspective on how serious these are in global terms compared with those in the United States especially. It is a question of ignorance and bias.
Commentators, especially those who appear not to have experienced past real estate-linked financial crises that have occurred in places ranging from the US and Europe to Hong Kong and Latin America, fail to appreciate the significance of accompanying systemic risk.
Thus, while China appears able in terms of financial and fiscal resources to absorb the impact of its property crisis, retarding though this will be to economic growth, the same cannot be said of the US and of some European nations.