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How contagion works.

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The crumbling Chinese real estate sector is starting to put properties around the world on the market at deep discounts, threatening debt-laden American commercial developers and the U.S. banks holding the loans, according to Bloomberg.

In a bid to pay off massive debts, Chinese real estate developers are having to offload a huge number of properties onto the global market, depressing prices even further for a sector that already has had borrowing cost hikes, causing a loss of $1 trillion in office property values, according to Bloomberg. The drop in property values hits American commercial real estate particularly hard due to the huge amount of debt the sector holds and the dwindling U.S. demand, with banks that hold the debt also fearing they may lose out on their investment

As time progresses and more properties sell at a discounted rate, buyers will hone in on the running market rate that will set property values, lowering the evaluation as new Chinese-owned properties flood the global market, according to Bloomberg.

American commercial real estate is facing $2.81 trillion in loans that are set to expire sometime through 2028, with developers either having to pay outright when the term comes due or refinance their debts. Interest rates on loans are experiencing upward pressure from hikes in the federal funds rate, which currently sits in a range of 5.25% and 5.50%.

Small and regional banks hold a disproportionate number of American commercial real estate loans, putting them at risk if developers are unable to pay their debts. Regional bank New York Community Bancorp stock reached a 27-year low over concern about its exposure to commercial real estate loans, according to Bloomberg.”
 
 China’s Real Estate Collapse Infecting Troubled American Sectors | The Daily Caller
 
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