China is “looking into a black hole” when it comes to its ailing property sector – and British businesses could also be sucked in, a UK tax consultant has warned.
And Bob Lyddon has listed four ways in which the impact is likely to be felt domestically, highlighting a particular risk of the residential market taking a “real whack”.
Mr Lyddon, the founder of Lyddon Consulting Services, was reacting to figures published by the Chinese Government’s National Bureau of Statistics last week.
These suggested that, while China’s manufacturing and investment had improved in the first two months of 2024, weakness in the property sector was weighing on the economy.
Specifically, investment in real estate fell by nine percent in January and February, compared to the same period a year earlier.
Mr Lyddon told Express.co.uk: “I am sceptical about emissions either from official Chinese sources (like the National Bureau of Statistics) or from ‘approved’ commentators who are offered privileged access in exchange for singing the official tune (and the privileged access may be to data that is more misleading than the public version).
“Banks who are heavily exposed will naturally wish to recycle the most upbeat version.”
Mr Lyddon continued: “To my mind they are still looking into a black hole in the property sector. The liquidation processes of Evergrande and Country Garden have barely got started.”
There were definite parallels with the UK, Mr Lyddon suggested, where asking prices are reported to have increased by £5,000 in the last month, likely because sellers were anticipating a cut in interest rates which still has not materialised.
He said: “Sellers can ask, that doesn’t mean buyers will offer.”
Mr Lyddon suggested: “Estate agents, the Royal Institute of Chartered Surveyors, and the government seem to be engaged in an orchestrated attempt to talk the market up, when the fundamentals point in the other direction.”
Despite the Chinese Government attempting to put a positive spin on things, the nine percent drop should set alarm bills ringing, Mr Lyddon pointed out, given China’s property market is estimated to be worth a dizzying £107trillion.
Economists agree that any collapse would have an impact which would be felt the world over – and in some ways already was, Mr Lyddon explained.
He said: “Look at the US commercial real estate market (New York Community Bank), and then the German residential property market, and then some of the UK council-backed commercial real estate disasters (like Woking)…how long until UK/residential starts taking a real whack?”
Mr Lyddon indicated four specific ways in which China’s sagging property market could end up having a knock-on impact on the UK.
Firstly, there was a risk of commercial real estate owners not paying their mortgage interest. As a result the lender repossesses the property and had to sell out at a loss, thus depressing the market and reduces prices – a trend most marked in large city centres impacted by work from home.
Secondly, buy-to-let owners could decide to sell up due to tax changes, higher interest payments, and increased council tax. Consequently there would be more supply on the market, likewise depressing the market and reducing prices.
Thirdly, holiday-let owners could increased council tax and the end of the Furnished Holiday Lettings Regime, Mr Lyddon suggested. They may therefore decide to sell up meaning more supply on the market, once again depressing market and reducing prices, most marked in holiday areas.
Finally owner-occupiers, despite higher interest payments, increased council tax and general cost-of-living increases “are probably the last shoe to drop”, Mr Lyddon said. He added: “There may be more repossessions but the main issue is unaffordability at the still very high, current level of asking prices.”
