🏠📉 The profound impact of the real estate market adjustment on the overall economy

As a Hong Konger, I'm no stranger to the love-hate relationship with the property market. The property market not only determines the homeownership dreams of many families but also serves as the foundation of the broader economic and financial system. In recent years, the real estate market has entered a period of adjustment, sparking significant social concern, including the collapse of mainland China's property market and the correction of Hong Kong property prices. Here, we'll share a comprehensive analysis of how this real estate market correction impacts the economy.

1. The key position of real estate in the economy🏗️

• Direct contribution: Real estate-related industries (construction, home furnishing, finance, land administration fees) contribute up to 20–30% to GDP
• Chain effect: Promote the entire industry chain including building materials, home appliances, decoration, logistics, and retail
• Financial core: Local governments rely on "land sales" to earn money, and the Hong Kong government relies more on stamp duty and land prices to subsidize its treasury.

2. The direct consequences of falling prices

Construction and related industries suffered setbacks

Developers are reducing new projects → Demand for cement and steel is plummeting. Builders, contractors, and renovation companies are seeing shrinking orders, putting workers under immense pressure from unemployment.

The home furnishing and home appliance market weakened

A decrease in property transactions has led to a slowdown in demand for renovations, furniture, and home appliances. This has put pressure on retail performance, with mall tenants experiencing sluggish business and a thriving secondhand appliance market.

3. Intensified pressure on the financial system

Bank asset risk

Homeowners are increasingly facing negative equity. Once they become unemployed or can no longer afford their mortgages, mortgage default rates rise, forcing banks to increase their bad debt provisions, squeezing profits.

Local and government fiscal pressures

Mainland China's local finances rely on land sales, while Hong Kong relies on stamp duty. Sluggish transactions → a sharp drop in revenues. The government faces a growing challenge in balancing infrastructure, livelihoods, and preventing deficits.

4. Both consumer and investment confidence have been dampened.

Wealth effect reversal

For most families, real estate is their largest asset. Falling property prices have reduced paper wealth, leading to a decline in consumer spending, putting pressure on retail, tourism, and the restaurant industry.

Declining returns on investment

Real estate is no longer a "guaranteed profit" investment, and funds are shifting to safe assets such as US stocks, the US dollar, and gold. In the short term, there are no comparable alternative investments, which may lead to weaker investment demand.

V. Macroeconomic Policy Challenges and Responses

Monetary policy is caught in a dilemma

Interest rate cuts: Helps relieve pressure, but may create new bubbles. Tightening: Maintains financial stability, but further impacts the economy and housing market.

Limited fiscal policy

Local governments lack the funds to build more infrastructure, and the central government may need to intervene: transfer payments, subsidies for first-time homebuyers, support for long-term rentals of public housing, and consumer vouchers.

6. Long-term opportunities: structural and industrial rebalancing

Housing returns to its residential attributes

Policies are in place to support basic needs and upgrade housing needs. Long-term rental apartments and shared-ownership housing are being gradually promoted, alleviating the difficulty of buying a home.

Industrial upgrading and urbanization

Smart cities and green infrastructure are driving a new round of demand. Second- and third-tier cities are taking on population and industries, promoting new urbanization.

Financial innovation support

REITs (real estate funds), green bonds and other tools introduce long-term funds into real estate asset securitization, diversify risks and increase market liquidity

7. Experience

1. Wait and see the market, buy if you really need it: If you really need to live in a property, you can take advantage of the market correction to pick up high-quality second-hand properties and lock in long-term value.
2. Diversify your investments: Don't go all-in on the property market; instead, focus on emerging industries like new energy, technology, and healthcare to share in future growth.
3. Pay attention to policy trends: The property market is closely linked to policy, so Hong Kong investors should closely monitor central and local real estate regulation news.
4. New long-term rental opportunities: Long-term rental apartments and shared housing are stable assets and will continue to attract increasing attention in the future.

Conclusion

While the real estate market correction will have a short-term impact on the economy, it presents a long-term opportunity to "de-bubble and promote reform." The economies of China and Hong Kong must shift from relying on property speculation to relying on innovation and high-quality industries. As investors and citizens, we must adapt to this structural transformation, safeguarding our core assets while seizing new industry breakthroughs. 💪