China's real estate sector is in even worse shape than people think

RTR3HDPFREUTERS/Carlos BarriaLabourers work at an upside-down house under construction at Fengjing Ancient Town, Jinshan District, south of Shanghai, March 17, 2014

If you can tear your eyes away from China’s volatile stock market, you may want to focus on the country’s real estate sector.

It’s about to enter “a continued, multi-year slowdown of very significant proportions,” according to a note from Barclays.

The likelihood of an imminent collapse is low, says Barclays, but “the slope down might be a little steeper than many investors expect.”

Here are the main points:

  • Supply is massively outstripping demand. China’s housing inventory problem is worse now than in 2012 and 2014. The big 10 cities have around 14 months of spare inventory at the moment.
  • The share of residential real estate investment in GDP (10.4%) is higher in China than any other economy before a major real estate collapse, apart from Spain in 2006 (12.5%). The US was at 6.5% before the subprime collapse.
  • Around 40-45% of China’s total debt is tied up in real estate — that’s as much as $US9.5 trillion (£6.1 trillion), according to the note.

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