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How Could the Chinese Stock Crash Impact the UK’s Residential Market?

Gareth Hill 31st August 2015 In the Press

Following the crash of the Chinese Stock Market on the 24^th August and the ensuing financial volatility in its aftermath we ponder upon the potential impact that such a downturn of China’s markets might have on the residential property market here in the UK.

Chinese Economy Slowing NOT Crashing

The first thing to consider with regard the current situation in China is that recent events, whilst clearly significant, seem to represent a slowing, or perhaps a re-correction, of the Chinese economy rather than an outright collapse – as has been reported across some media outlets in the past week.

The stock market crash would appear to be a reaction to the credit-based investment boom that has taken place in China in the past eight years since the financial crises across Western economies back in 2007-08. During this period Chinese debt quadrupled to around $US 28 Trillion resulting in sharp rises in the relatively young stock markets in Beijing and Shanghai. This recent downward turn would therefore appear to mark a somewhat inevitable market correction. Indeed, as reported in the Independent, even post-crash the market was still valued at around 60% higher than it was just a year ago.

Nevertheless, even though this show may signs of a slowing, rather than crashing of the economy, the fact remains that we are talking about the second largest economy in the world so there is inevitably going to be some kind of reaction and impact felt across the world.

Long-Term Positivity for Residential Property Investment

As you would expect there has been a degree of volatility in global markets immediately after the crash in China and it’s predicted that these markets might see some fluctuation in the weeks ahead. However, given the reasonably speedy bounce back (the following day) of the major trading centres around the world the likelihood is that any blips may turn out to be short-lived.

In terms of the impact that may be felt on investment into the residential property market here in the UK there is a real chance that, while there may be a slight hit in the short-term due to those who would typically invest being the ones hit by the drops in share process, the long-term outlooks however, may be considerably more positive.

Why?

Basically, there remains a high level of liquidity within the Chinese economy on account of interest rate reductions from the central bank, providing opportunities for affordable lending for potential investors.

And, as long as this liquidity remains then there will be investors searching for suitable and dependable markets to place their money and seek reliable returns. With fluctuations in stocks potentially deterring major investment then investors may well turn to the dependability of traditional ‘bricks-and-mortar’ investment such as residential property.

It’s a prediction backed up by real estate experts Colliers, who estimate that the residential market will continue to be looked upon as a favourable area of investment from China (as well as other overseas investors) due to a reliable rental market as well as pretty dependable long-term returns. Add to this the continued high demand for residential properties across England and Wales and the future may well present some fruitful prospects for those seeking to expand their portfolios beyond the Chinese markets.

Gareth Hill 31st August 2015 In the Press

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