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The collapse of the Evergrand: Israel is also sensitive to the shock waves - Walla! Of money

2021-09-22T12:30:44.691Z


Is it possible that a real estate company that is collapsing in China, will lead to top waves all over the world, to company collapses and a recession that will be felt even in Israel?


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Evergrand collapse: Israel is also sensitive to the shock waves

Much has been written about the expected impact of the possible collapse of the Evergreen real estate giant on the market in China, but could it lead to top waves worldwide, corporate collapse and a recession that will be felt even in Israel? To answer the question, previous global crises must be examined

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  • China

  • Guangzhou

  • Subframe

  • Wall Street

  • Real Estate

Adv. Moshe Raz-Cohen

Wednesday, 22 September 2021, 14:02 Updated: 14:28

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The last few days have shaken the Chinese market due to the fear of the collapse of the large real estate company Evergrand. Much has



been written about the expected impact on the market in China, and the question arises whether a collapsing real estate company in China In Israel.



To examine the question, it is worth returning to two crises that managed to surprise all the analysts.

The Great Depression in the 1930s and the subprime crisis.

The psychological effect and chain reaction can be learned from the Great Depression and the special sensitivities of the real estate sector can be learned from the subprime crisis



.

Failure to repay its debts to banking entities, creating a shock wave in the financial system.

We learned from the Great Depression that a local financial crisis could send the waves to the entire banking system.

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(Photo: AP)

Loans given without equity create the risk

The existence of the banking system depends on the capital adequacy determined by the regulators and public confidence.

Thus if the Chinese market responds hysterically to the crisis, it will be difficult to assess where it will stop.

The collapse of the company will, of course, lead to the collapse of many companies in the field of real estate. Here, too, the psychological effect is significant. To cover the company's debts, large-scale real estate realizations will be required.

Will the Chinese market respond to falling real estate prices?



Falling real estate prices, as we saw in the subprime crisis, are sending its own waves: the global mortgage market may react in crisis.

Countries that have not implemented stricter regulation following the subprime crisis may in turn suffer.



Loans that can be purchased for an asset without equity, create the initial risk. Even in Israel, following a consistent rise in real estate prices, companies have emerged that advise how to take out a loan from the banking system in the amount of the entire property purchased. In addition,



countries that have a consistent rise in real estate prices are more sensitive than others to such crises, as the prevalence of high-risk transactions is particularly high. Only countries with strict regulations regarding the mortgage rate and capital adequacy are protected from the consequences of the crisis.



It is true that the practice of mortgage-backed trading in the US has contributed to the intensity of the sub-crisis, but the lack of mortgage-backed bond trading does not make the market immune to crises.



It is to be hoped that the collapse of the avant-garde company will remain local, but the possibility that the collapse will send the world's top waves should not be ruled out.



It is true that the Israeli market seems immune due to the continuing strong demand for housing, but consumer behavior in the near term, against the background of a global crisis, may affect the market in Israel.

Adv. Moshe Raz-Cohen, from the firm of Raz-Cohen, Freshkar & Co., which specializes in real estate (Photo: Tamar Mitzpi)

The author is Adv. Moshe Raz-Cohen, from the firm of Raz-Cohen, Freshkar & Co., which specializes in real estate.

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Source: walla

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