Impact of Recession on Property Markets

Readers Question: We read of how the the housing market crash in the U S has attributed to the impending world economic recession. Can you discuss the effects, both positive and negative, of this recession on the Property Market of Asian developing economies, notably, China and India.

The recession in US and Europe will contribute to a slowdown in developing economies. For example, China relies on exports to the West, so growth will be lower. With lower rates of economic growth this may reduce the growth of house prices and slowdown property markets in China and India.

However, since growth in China and India has been remarkably high, the slower rates of growth may help to reduce inflationary pressure and prevent an unsustainable economic boom. In this regard more moderate growth could be beneficial for the developing economies and their local property markets.

I’m not quite sure how the global credit crunch will affect mortgages / finance in India and China. I don’t think that Chinese and Indian banks are  heavily exposed to the toxic subprime mortgage debt which has been crippling US and European banks. However, the banking problems around the world would probably make it more difficult in developing countries as well. This could lead to a shortage of finance and if this occurs it could cause problems for developing property markets.

The other question worth considering is to what extent are property markets in developing countries overvalued. Certainly places in China suggest a property bubble. A collapse in confidence around the globe would have a negative impact on property market sentiment and could cause the boom turning to bust.

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By on October 9th, 2008