What China's Black Monday means for global property markets

Could major and emerging investment destinations actually benefit from China's stock market crash?

Photo by On Man Kevin Lee/Getty Images Photo by On Man Kevin Lee/Getty Images

It was a colourful last week for many economies around the globe, starting with China stock market’s showing of instability last 24 August 2015, now labelled as ‘Black Monday’ by many media outlets. Here’s the roundup of events that could impact today’s real estate markets.

China

Last week’s debacle began when the Chinese stock market caused international shockwaves after it fell by nearly 8.5 percent on Monday in the Shanghai Composite Index. It was the biggest one-day drop since 2007, according to British newspaper The Guardian, causing other global markets to tumble, from the Pacific to Wall Street.

What happened? The Asian Nikkei Review recalled the stock selling activity on 24 August, which began the Shanghai bourse being “bombarded with heavy selling.”

Michael Kurtz, global head of equity strategy and chief Asia ex-Japan strategist at Nomura, said on 25 August that investors were extremely concerned of a Chinese “hard landing” where authorities’ lack of action to aggressively support the slowdown in the Chinese economy, subsequently causing panic in the stock market and quite possibly, as the US-based National Association of Realtors put it, placing the Chinese home buying industry “under a cloud of uncertainty.”

North America

Despite the global commotion, however, some of the world’s top real estate markets like New York City could actually benefit from China’s crash. According to a report from the International Business Times, the tendency of Chinese outbound investors to “seek safe places to stash capital.”

“I don’t see any decline of Chinese purchases,” said Lawrence Yun, chief economist at the National Association of Realtors. “In fact, I think there could be an increase, because people want to take their money out of China and put it in a safe location."

China was recently named the top foreign investors in the US real estate market, outpacing Canadians.

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In Vancouver, another market that’s currently popular among wealthy Chinese property investors, there’s a positive outlook that the Chinese slump will not have much impact in the performance of the foreign buyers’ segment.

Realty Today reported that Black Monday would have a “minimal” effect on Vancouver real estate, with property insiders confident that there would not be a barrage of Chinese investors liquidating or selling their assets or properties.

United Kingdom

Similar to North American markets, the UK market, specifically the luxury segment, is expected to weather this volatility of the Chinese economy.

Chinese investors are among the most active overseas property buyers Chinese investors are among the most active overseas property buyers

“The Chinese are increasingly focused on diversifying their assets and uncertainty over the performance of the stock market reinforces this. There is anecdotal evidence that Chinese buyers have intensified their interest in ‘safe haven’ global property markets, including London, as a result of the recent stock-market volatility,” Tom Bill, head of London residential research at Knight Frank, told The Guardian.

Southeast Asia

The Phnom Penh Post reported that the drop in China could also increase investments in Southeast Asia’s emerging markets, such as Cambodia, which received at least USD1.4 billion in construction projects in the first trimester of last year.

“Precedent suggests that perception of a weakening yuan normally cause investment outflow from China and at the margin that may even increase demand for property investment here. It’s a bit counter-intuitive, but the flow can work that way,” said Grant Knuckey, CEO of ANZ Royal Bank, in an interview with the Cambodian publication.

Elsewhere, some markets are not as optimistic. In Malaysia, which has seen its domestic economy plummet since this summer, with the Malaysian ringgit reaching record-lows in the last two decades, according to The Diplomat, investor sentiment is in the doldrums.

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A major partner of China’s export industry, Malaysia is currently facing its own economic challenges that could mean trouble for Singapore, as fewer Malaysian tourists could then visit Singapore to rent hotel rooms or spend cash in the Lion State’s retail destinations. AsiaOne reported that the ringgit has plunged 20 percent against the Singaporean dollar in the past year.

What can be done to reignite the Malaysian economy at this time? Penang Real Estate and Housing Developers Association chairman Datuk Jerry Chan has one suggestion to change this – he told the New Straits Times that the Malaysian government should consider increasing the wages of the working class.

“This will directly stimulate the economy. Right now, things are expensive and wages are low, thus there is not enough economic movement.”