New Delhi: First it was Evergrande. Then there was Country Garden. Now, a smaller player in China’s defunct real estate market — China Vanke is feeling tremors. China is in a messy spot. Real estate has been a major driver of its economy contributing almost 30 per cent to the GDP. Reports suggest that the share could come down to 15 per cent in the next two decades. But that seems like wishful thinking too.
Last week, the Chinese government announced that it was infusing a $138 billion stimulus to bail out the crashing real estate sector. The bid is to coax state-owned enterprises to buy 4.2 billion square feet of unsold houses! To put it in perspective, that’s more than 20 lakh houses of 2,000 square feet! Imagine the scale.
The Central Bank of China has offered to provide a loan of $42 billion to the states to buy these houses. But there are three problems here:
Local governments are already reeling under a $9 trillion debt, contracting their capacity take on additional loans.
What will local governments do with these houses even if they were to buy them? They would want to sell them at some stage, but China has no buyers!
Real Estate players feel the stimulus is too little and may force them to sell the unsold houses at a much lower price than they would have wanted to. This is leading to a sell-off in real estate stocks in China and Hong Kong. One thing is clear – China has no money to indulge in buying houses. Supply outweighs demand.
India’s real estate story
In India, the story is the exact opposite, since demand is much stronger than supply over here. In contrast to China’s crisis, India is experiencing a real estate boom. Currently, India’s real estate sector contributes about 7 per cent to the GDP and is expected to grow to $5.8 trillion by 2047, accounting for 15.5 per cent of the economy.
Research reports notwithstanding – the trendline is clear. Look anywhere, and speak to any broker – property prices are only rising. House prices in Bengaluru, Delhi-NCR, Ahmedabad and Pune have increased in double-digits in the January-March period this year, compared to the same period a year ago. Unlike China, unsold inventory in India is dipping. Pune saw a dip 10 per cent year-on-year dip in unsold houses this year, while the number of unsold houses in Delhi-NCR declined 8 per cent year-on-year. This indicates that more people are in a position to buy houses.
Robust demand, especially in premium and luxury housing, is driving sales, according to industry body CREDAI. All this at a time when prices are rising and interest rates are high. Last year, India sold houses worth Rs 4.5 lakh crore. Even if a modest 10 per cent rise in prices and 10 per cent rise in the number of houses sold were to continue – we are looking at closing the year at about Rs 5.5 lakh crore. That’s $65 billion.
So, while China is pumping in $130 billion to boost sales of houses, India is already organically buying $65 billion worth, with no stimulus. India’s economic growth and high consumption justify this property boom, but China’s real estate crisis makes one wonder whether the dragon economy is really growing at 5.2 per cent when one-third of its GDP actually requires a government bailout.
As China declares a $130 billion fund infusion into the real estate sector, India is witnessing $65 billion worth of organic growth. China’s real estate sector has witnessed the fall of giants such as Evergrande, Country Garden and now China Vanke, leaving a mammoth inventory of unsold houses, while Indian metros have reported a quick decline in unsold houses. Biz News Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
