- ORIGINAL NEWS
KKR says China’s real estate correction may only be halfway done
- SUMMARY
China’s real estate industry is grappling with a correction that could be far from its completion.
KKR, a global investment firm, believes the ongoing correction could be just halfway through, based on comparisons with housing corrections experienced in the US, Japan, and Spain.
This prolonged correction poses a challenge to China’s economic growth, currently estimated at 4.7% for this year.
Real estate and COVID-related factors are contributing to a drag on GDP, with a combined impact of 1.4 percentage points.
To address these challenges, KKR emphasizes the urgent need for China to tackle the root causes of its overbuilt real estate sector.
Additionally, restoring confidence is crucial to encourage savings depletion and stimulate consumer and business spending.
The slump in real estate and stock markets, coupled with geopolitical tensions, has led to foreign institutional investors reconsidering their China investments.
KKR’s survey indicates a significant decrease in allocations from 10-12% to 5-6%.
Despite headwinds, KKR predicts a modest slowdown in China’s GDP growth trajectory, reaching 4.5% next year.
Nevertheless, the drag from real estate and COVID factors is expected to ease slightly over the next few years.
Other sectors such as catering, accommodation, and wholesale are expected to play a modest role in growth, while digitalization and green initiatives remain key drivers.
For investors, KKR highlights the significance of ensuring accessibility to capital markets for businesses and households.
This is essential for improving capital costs and enabling consumer companies to access funding at favorable rates.
Long-term, KKR expects China to follow historical patterns and adopt more investor-friendly policies.
While this does not suggest an immediate return to investment, it serves as a reminder that significant market rebounds are possible with appropriate policy adjustments.
- NEWS SENTIMENT CHECK
- Overall sentiment:
neutral
Positive
“China’s GDP can grow by 4.7% this year thanks to growth in new industries, while real estate and Covid-related factors account for a drag of 1.4 percentage points, the report said.”
“Catering, accommodation and wholesale are set to modestly increase their contribution to growth in the next two years, while digitalization and the shift toward more carbon-neutral, green industry are expected to remain the largest drivers of growth, according to the report.”
Negative
“Based on comparisons to housing corrections in the U.S., Japan and Spain, China’s “housing market correction may be just halfway complete” in terms of its depth, the report said.”
“To date, though, it has largely been a contraction in volume.”
“Amid geopolitical tensions, the country’s property market slump and drop in stocks have given many foreign institutional investors pause about China investing.”