China’s Real Estate Troubles Likely Far From Over, Global Investment Firm KKR Says

According to a recent report by global investment firm KKR featured by CNBC, China’s real estate troubles are likely far from over and industry problems need to be addressed quickly if overall GDP growth is to pick up significantly.

That is one of the two key takeaways from a recent trip to China by the firm’s head of global and macro asset allocation, Henry McVey. “A fundamentally overbuilt real estate industry needs to be addressed—and quickly,” he said.

“Second, confidence must be restored to drive savings back down,” McVey said, noting that would spur consumers and businesses to spend on upgrading to higher quality products, as Chinese authorities have promoted.

Real estate and related sectors once accounted for about one fifth or more of China’s economy, depending on the breadth of analysts’ calculations, CNBC reported. The property industry has slumped in the last few years after Beijing’s crackdown on developers’ high reliance on debt for growth.

Based on comparisons to housing corrections in the US, Japan, and Spain, China’s “housing market correction may be just halfway complete” in terms of its depth, the KKR report said, according to CNBC.

“Both price and volume must come under pressure to finish the cleansing cycle,” the report said. “To date, though, it has largely been a contraction in volume.”