Is China's property bubble about to burst?

[david_dawei]

http://business.blogs.cnn.com/2011/11/02/is-chinas-property-bubble-about-to-burst/

 

In an interview with the New York Times last year, leading hedge fund manager Jim Chanos described China¡¯s property market as ¡°Dubai times a thousand."

 

He was of course referring to the collapse of the Gulf state's overheated real estate market in 2009 after a six-year boom.

 

In another interview with Bloomberg during the same period, Chanos said China ¨C which has enjoyed its own boom ¨C was on a ¡°treadmill to hell.¡±

 

"They can¡¯t afford to get off this heroin of property development," he claimed. "It's the only thing keeping the economic growth numbers growing.¡±

 

A year on and the prominent China-watcher says the treadmill has only gotten ¡°bigger and faster¡­than ever.¡±

I wonder if the west could get any more sensational than this... judging all markets by their own.

 

The last few comments are a bit more on point:

 

But not everyone agrees.

 

The recent downturn is merely a ¡°self-inflicted correction phase¡±, according to Nicole Wong, regional head of property research at CLSA Asia-Pacific.

 

She described fears of a hard landing as a ¡°misunderstanding of China¡¯s property market. It's not a real market dominated by supply and demand, it¡¯s dominated by the direction of government policy.¡±

 

¡°In recent years, the Chinese government has driven a lot of money into the market and created imbalances, so now they¡¯re trying to balance it and make it productive.¡±

 

She added that China¡¯s market is ¡°definitely very different from that of Dubai, which is very much a supply and demand-driven market. The government¡¯s role is much smaller [in Dubai] because of the capital market structure.¡±

 

The fact is: bribe money ends up going somewhere... investment in building... It is actually that simple.

[foobaz123]

Watching the very fast rising prices and comparing them against the average, or even above average, incomes for those who would theoretically be buying these places I admit I've wondered when it was going to pop for a long while. Maybe the lady in the second part is right and it is different, but I can't help but look at those rapidly rising prices and not think "bubble, soon to pop".

[dnoblett]

Interesting one in China Daily today.

 

Real estate meltdown fears

BEIJING - A number of leading real estate brokerages have started shutting outlets, as the government's ongoing property-tightening measures cause transactions to slump and the price of pre-owned homes to hit a record low.

http://www.chinadaily.com.cn/china/images/attachement/jpg/site1/20111108/0013729e4a601022b84715.jpg

 

Agents' price-cutting boards fail to attract passing trade in Shanghai on Nov 5. [Photo/ China Daily]

 

In Shenzhen, the brokerage giant Centaline Property Agency Ltd on Thursday announced it will close 60 outlets and lay off 1,000 workers nationwide. The wave of shutdowns has also spread to Beijing, with several large-scale property brokerages following suit.

 

Century 21 Real Estate LLC closed 34 outlets across the country in the first two quarters, according to its financial statement. The number increased further in the third quarter, according to reports in the Beijing News, which didn't provide figures.

 

 

MORE: http://www.chinadail...nt_14054044.htm

[Randy W]

What you're over-looking here is that this is NOT market-driven

Premier Wen Jiabao said on Sunday that the property market policies will remain in force. "We would like to stress that there is no possibility of loosening the real estate policies. Our target is to let the property price fall to a reasonable level," said Wen.

 

It's simply a re-direction of available money for loans until the property market cools off "to a reasonable level".

 

Notice they're comparing prices back to January, when the current policies took effect.

 

In other words, NOW is not the time to buy - wait until they see that their policies have (hopefully) had the desired effects.

 

Policies in the US which have effected the economics of home purchases (specifically, the first-time home buyers credit) have similar (but not as pronounced) effects. In other words, you might think twice if you know that a required down payment is going up by 20% or more.

 

In 1990, the population of China was 20% urban. It passed 50% just this year - that's an increased need of urban housing for about 400 million people during that period.

[tsap seui]

Having lived through housing "corrections" in America various times in my life I look at all of what is going on in China with a very simple logic....What Goes Up, Comes Down. Some will laugh, some will cry.

 

China is only going to get a taste of what we have lived for many years with. I've had it both ways with our housing corrections and just bought a home here for a good 20% off of what it would have sold for 5 or 6 years ago.

 

When we bought our home in China we never considered the markets of the future. Luckily we bought in a cheap market, and we bought on the edge of the city proper which kept the price low, as well as kept us out of the noise and most of the polution. The home has gone up a modest 25% since 2008 but we could care less if it had dropped 25%....or 75%

 

I hope the best for China but they are only going to see what all this capitalism can do sometimes when they get their correction....yawn. It's been fun watching many jump on the real estate roller coaster, heck, Wenyan took a modest amount of her rmb and turned it well into 6 figures with small junk houses. I never even knew she was investing and only found out when she had reached her stopping point and banked the money. Fushun is just a puddle jump in the China picture and it won't get hit as hard as many of the big "shities" will when corection time comes because they didn't escalate with the insanity that some city's did.

 

Good luck Chinertucky.

 

tsap seui

Edited November 8, 2011 by tsap seui (see edit history)

[knloregon]

"..What you're over-looking here is that this is NOT market-driven." But Randy, what market are you referring to? If the state controls the market, (which it does) how is this not market driven? WSJ had a good article on this today. By clamping down on funds available for purchase, the State can control the flow of financing, and has, finally been able to narrow the flow of those funds.

 

The natural market forces (supply and demand) normally in play haven't been a factor for many years. Even though the press of urbanization has be going on for at least 20 years, migrant workers can't buy real estate in the cities. Evidence is clear: Go on line to rent (short term) a condo even in the very high markets of Shanghai, or Beijing --- find the right site, and you see a number of listings from condo owners ---who purchased with no intentions of living in the units ---and they are dirt cheap to rent.

 

The number of unrented units related to those rented, is one formula of any real estate bubble. Its been my observation that in China, that ratio of unrented is much higher than in the US ---even at the top of the condo bubble of 07/08 Resort areas are even worse. The obvious outcome: Rented property doesn't force immediate sales in a downturn --- empty (non-income producing) property does. For those in China who bought only to make money on the real estate ride up -- and that's a lot of the market --- they will lead a panic sell off if it becomes clear no more upside is likely.

[2mike&jin]

My goodness...I just noticed something. I have the windows open, (It's raining and cool) and I don't hear the sound of 'Construction". OMG - I don't see any Construction Towers....during 2006-2009 they were everywhere -- what a big change.

 

As I've walked around Xiamen, a thriving metropolis, I do notice 1. Less Laundries and Open AIr stalls, (2) More "Wine Shops" and "Wine Bars", (3) 6 Starbucks (there were none last year), (4) All the Taiwan Wal-Mart Look alikes are NOW WAL Marts, (5) EVERYTHING HAS GONE UP UP UP, (5) The nice bank man, GAVE ME a plastic case containing a 5 yuan and 1 yuan GOLD PIECE like bankers in the US used to give calendars. (More on the bank, re-patriation of funds, cards when I validate all upon return to the US).

 

Yes China is changing rapidly, up's downs, winners and losers in markets -- starting to sound like all the rest of the developed countries.

 

SIDE NOTE ON COSTS: Son has his obligatory - CHINESE BUG CAUSING HIGH TEMPERATURE yesterday...so high we had to go to the hospital - Dr. Offered IV's or American Medicine in other forms - off to the pharmacy American Drugs - usual stuff all for about $5.00. Why does this stuff cost $5.00 here and $50-$100 in the US? How did the US get themselves/ourselves in this kind of upside down world?

[Randy W]

"..What you're over-looking here is that this is NOT market-driven." But Randy, what market are you referring to? If the state controls the market, (which it does) how is this not market driven? WSJ had a good article on this today. By clamping down on funds available for purchase, the State can control the flow of financing, and has, finally been able to narrow the flow of those funds.

 

The natural market forces (supply and demand) normally in play haven't been a factor for many years. Even though the press of urbanization has be going on for at least 20 years, migrant workers can't buy real estate in the cities. Evidence is clear: Go on line to rent (short term) a condo even in the very high markets of Shanghai, or Beijing --- find the right site, and you see a number of listings from condo owners ---who purchased with no intentions of living in the units ---and they are dirt cheap to rent.

 

The number of unrented units related to those rented, is one formula of any real estate bubble. Its been my observation that in China, that ratio of unrented is much higher than in the US ---even at the top of the condo bubble of 07/08 Resort areas are even worse. The obvious outcome: Rented property doesn't force immediate sales in a downturn --- empty (non-income producing) property does. For those in China who bought only to make money on the real estate ride up -- and that's a lot of the market --- they will lead a panic sell off if it becomes clear no more upside is likely.

 

 

You're asking ME what "market" means? The word "market" usually refers to buying and selling - NOT the degree or type of control a government has over that. You seem to agree with me when you say, "the State can control the flow of financing, and has, finally been able to narrow the flow of those funds". When the state makes it more difficult to buy, of course the buying is going to slow down.

 

I'd be interested in seeing hard data (e.g., rented vs. unrented) - NOT the vacuous, hand-waving predictions about what may or may not happen in the future. If migrant workers aren't buying, who is? And what are these workers renting? You seem to indicate that there's a adequate supply of both.

 

I bought and sold my home in Houston across the downturn there - at a profit. I expect we'd be able to do the same here, if we wanted to. As it is, we're going to sit back and wait before we make any decisions about buying additional property.

 

My point was that it was basically the state policies that brought about the present downturn in sales - not any actual change in market conditions. I'm not in the business of predicting the future.

[knloregon]

"....I'd be interested in seeing hard data (e.g., rented vs. unrented) - NOT the vacuous, hand-waving predictions about what may or may not happen in the future..."

 

Geeezz... Yeah, I did offer an opinion, Randy, but I also offered a source. Here is the source that I offered:

 

WSJ (11/8/11) "BEIJING---A decline i China's property prices is picking up steam, suggesting Beijing has had some success in taming housing costs, while also raising concerns that prices could drop too far and fast when the rest of the world is relying on the country as an engine of growth.

 

House prices were flat or falling in a majority of China's top cities, weekly data released Monday show. The weekly data, though volatile, add to evidence that housing prices are headed downward after years of consistent increases." --- as usual, the WSJ isn't in the business of "vacuous hand-waving" : " J.P. Morgan analysts forecast that prices nationally could fall 5% to 10% over the next 12 to 18 months, and as much as 20% in some major markets."

 

And here Randy ---- is the "market" driver: (according to the WSJ) "Real-estate developers are having greater problems finding financing to complete projects or start new ones." 100% a function of the "managed" economy.

 

You want hard data? According to the WSJ, trust company lending "that have helped fuel the boom" ---dropped in the third quarter from about 130 billion rmb, (second quarter) to about 110 rmb., according to their graph. ---my point is an additional observation---(as one who has been a real estate renovator, and, to some extent, speculator since the early 1980's ----empty housing units are extremely vulnerable to panic selling. --or in the current case in the US: abandonment and foreclosure (not rocket science)

[Randy W]

"....I'd be interested in seeing hard data (e.g., rented vs. unrented) - NOT the vacuous, hand-waving predictions about what may or may not happen in the future..."

 

Geeezz... Yeah, I did offer an opinion, Randy, but I also offered a source. Here is the source that I offered:

 

WSJ (11/8/11) "BEIJING---A decline i China's property prices is picking up steam, suggesting Beijing has had some success in taming housing costs, while also raising concerns that prices could drop too far and fast when the rest of the world is relying on the country as an engine of growth.

 

House prices were flat or falling in a majority of China's top cities, weekly data released Monday show. The weekly data, though volatile, add to evidence that housing prices are headed downward after years of consistent increases." --- as usual, the WSJ isn't in the business of "vacuous hand-waving" : " J.P. Morgan analysts forecast that prices nationally could fall 5% to 10% over the next 12 to 18 months, and as much as 20% in some major markets."

And here Randy ---- is the "market" driver: (according to the WSJ) "Real-estate developers are having greater problems finding financing to complete projects or start new ones." 100% a function of the "managed" economy.

 

You want hard data? According to the WSJ, trust company lending "that have helped fuel the boom" ---dropped in the third quarter from about 130 billion rmb, (second quarter) to about 110 rmb., according to their graph. ---my point is an additional observation---(as one who has been a real estate renovator, and, to some extent, speculator since the early 1980's ----empty housing units are extremely vulnerable to panic selling. --or in the current case in the US: abandonment and foreclosure (not rocket science)

 

The statement I highlighted is one I might call "vacuous hand-waving", since I'm not trying to predict the future. However, it does seem like a fairly safe statement. Remember, though, that many predictions are based on continuation of existing policy

 

Hard data would come in the form of NUMBERS of occupied vs. unoccupied, owned vs. rented, loans vs. outright owned ...

 

Yes, I would call it a "managed" down-turn, NOT market-driven. I'm NOT, however, predicting that it WON'T turn south, nor am I claiming that it hasn't already begun doing so.

 

Your issue seems to be with the English language, not with me. Try making your points without involving me.

[TLB]

come on guys, you should be able to have this discussion without the pissing contest. You do an injustice to this site when you can't disagree without being disagreeable. Many of us like to read your thoughts, but we could do without the personal jabs.

 

thanks

 

Tim

[Kyle]

come on guys, you should be able to have this discussion without the pissing contest. You do an injustice to this site when you can't disagree without being disagreeable. Many of us like to read your thoughts, but we could do without the personal jabs.

 

thanks

 

Tim

 

Agreed

[Randy W]

Government Policies Cool China¡¯s Real Estate Boom

 

A MUCH better analysis from the New York Times - note the market swings in Shanghai and Sanya are fairly severe, but overall -

Economists at Barclays Capital suggested in a research note on Tuesday that the Chinese government might start reversing recent policies if the fall in real estate prices reaches 20 percent. The drop could reach 30 percent because the market might initially maintain its downward momentum, they said, but they suggested that an overall drop of 10 percent seemed more likely.

 

The mystery now lies in how much effect the real estate slowdown will have on the broader economy. Down payments of 20 percent to 40 percent for mortgages seem high by American standards but are feasible here because of high Chinese savings rates. That may mean that banks are less likely to sustain the heavy losses on home mortgages that Western banks have had over the last few years, senior financiers and real estate developers said, although they said that some smaller banks have substantial exposure to developers.

[Randy W]

China mocks U.S. political model

 

Not really a very good article, but some interesting thoughts from Hong Kong

 

Ronnie Chan, a wealthy Hong Kong developer who obtained U.S. citizenship through naturalization and votes in U.S. elections, is nevertheless downright dismissive of U.S. leaders and what he sees as partisan bickering and a tendency to pander to the public.

 

Mr. Chan¡¯s open venting and outspoken views have won him the nickname ¡°Typhoon Ronnie¡± among business associates. His company, Hang Lung Properties Ltd., has invested $6.4 billion in malls in Shanghai, Shenyang and Jinan, among other projects in China.

 

Mr. Chan said U.S. political leaders are so focused on short-term gains that they fail to make the painful long-term choices and changes in social programs needed to ensure the solvency of the government and vitality of the economy.

 

Chinese leaders, by contrast, lay out plans for the long term and systematically achieve them, producing unprecedented gains in living standards and a remarkable two decades of uninterrupted growth at nearly double-digit annual rates.

 

This proves that the Chinese system is better than the democratic system that the U.S. promotes around the world, Mr. Chan said.

 

China¡¯s more-enlightened economic management can be seen today, proponents say, as the nation battles a housing bubble by imposing strict new down-payment requirements on housing speculators and forcing them to pay higher taxes.

 

That contrasts with the U.S., which in the past decade took no action and allowed its housing and credit bubbles to keep inflating and eventually burst, leading to the worst financial crisis and economic recession since the Great Depression and persistent economic problems.