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China’s Real Estate Collapse Infecting Troubled American Sectors

China's collapsed real estate sector has begun selling properties around the world at deep discounts, threatening indebted U.S. commercial developers and U.S. banks holding loans, according to Bloomberg.

To repay huge debts, Chinese real estate developers will have to release huge numbers of properties onto the global market, further reducing prices in a sector that is already seeing rising borrowing costs and reducing office space. It has caused losses of $1 trillion. property value, according to To Bloomberg. The decline in asset values ​​has hit U.S. commercial real estate particularly hard due to the sector's high debt burden and declining U.S. demand, with debt-laden banks also worried they could lose investments. . (Related: It's not what you imagined: Americans are completely crushed by sky-high rents)

“If sellers are willing, the market could unfreeze and improve transparency and price discovery,” said Tolu Alamutu, credit analyst at Bloomberg Intelligence. “Portfolio valuations may fall further.”

According to Bloomberg, as time passes and more properties are sold at discounted prices, buyers will focus on current market rates to determine a property's value, and as new Chinese-owned properties flood the global market. Bloomberg reports that valuations will be lowered.

In late January, a court ruled that top Chinese developer Evergrande Group must settle more than $300 billion in debt after it failed to come up with a restructuring plan despite two years of efforts. I put it down. The collapse is part of a broader crisis that has seen companies responsible for around 40% of China's housing default on their debts since 2021.

U.S. commercial real estate faces $2.81 trillion in loans set to expire by 2028, when developers must pay them off in full or refinance. Loan interest rates have been under upward pressure from increases in the federal funds rate, currently in the 5.25% to 5.50% range.

Small and regional banks hold a disproportionate number of U.S. commercial real estate loans, putting them at risk if developers are unable to service their debts. Shares of regional bank New York Community Bancorp hit a 27-year low on concerns about its exposure to commercial real estate loans, according to Bloomberg.

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