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Is the China real estate bubble now popping?
Posted on 6/8/11 at 10:23 pm
Posted on 6/8/11 at 10:23 pm
I'm wondering how does this affect demand for gold and dollar-based assets by Chinese investors. Will a rush into precious metals sustain the gold bubble, or will the U.S. dollar appreciate against everything as China stumbles?
Anyway, here's the article: " The Great Property Bubble of China May Be Popping."
Complete with a scary looking graph...
As a caveat here, it's always extremely difficult to tell just how much power the Chinese governent has to implement capital controls. On the one hand, I suppose you could point to all the tightening measures put in place and argue that these are good measures that will keep real estate prices from spiraling out of control. On the other hand, historically there have often been instances of governments trying to tighten credit right as they are headed into the storm.
The Fed tightened credit going into the tech bubble, and credit was shrinking back in mid-2007, when names like Denninger, Shedlock, and Schiff were dominating the blogosphere. (Anyone remember the " Punch Bowl Caucus" from August 2007?)
Chinese policymakers have much more freedom to reflate the hell out of everything by fiat, however, so even if they can't prevent the bubble from popping, they do have much greater power and flexibility (than say, Japan in 1990 or the U.S. in 2008) when it comes to how they respond to it.
Even so, if construction really accounts for 13% of economic activity, it's really hard to see what the government can coerce it's citizens to keep doing. A massive currency devaluation would help keep many workers competitive for producing exports, but world demand isn't exactly what it used to be, and might get dragged down in tandem with the Chinese economy itself.
We'll see...
Anyway, here's the article: " The Great Property Bubble of China May Be Popping."
Complete with a scary looking graph...
quote:
Real estate is a foundation of China's phenomenal growth record in the past two decades, and its health is crucial to China's construction, steel and cement sectors. Real estate is also a favored investment of Chinese looking to get better returns than bank deposits pay. Local municipalities and provinces depend on rising prices for land sales as well to fund infrastructure projects.
quote:
A downturn in property and apartment prices would harm Chinese industry and investment, and crimp consumer spending. China is a "housing-led economy," says UBS economist Jonathan Anderson, who estimates that property construction alone accounted for 13% of gross domestic product in 2010, twice the share of the 1990s.
quote:
Standard Chartered Bank estimates that China's so-called tier-two cities, such as Dalian and Tianjin, may have 20 months of housing inventory by year end, putting "substantial" pressure on prices. Standard Chartered forecasts price cuts of 10% to 20% "in many cities."
A number of analysts think official data, which have continued to show a slight rise in prices, understate the slowdown as the government can affect the numbers by pressing developers to withhold or add high-value properties to the market depending on what it wants the data to show.
quote:
Chinese officials, facing widespread anger from ordinary citizens who can no longer afford to buy a home, have sought to slow the rise in housing prices. The unanswered question is whether the government can manage to reduce prices gradually in a way that won't undermine economic growth.
Since January 2010, the Chinese government has introduced a number of measures to stem speculation, including boosting down-payment requirements on mortgages for second homes to 60% from 40%, barring state-owned enterprises outside the real-estate sector from investing in property and lifting the amount of cash banks must hold in reserve 11 times—essentially reducing funds banks can lend.
"In some ways, [real-estate] prices are really crazy," said Guo Shuqing, chairman of China Construction Bank, in an interview last week. He says the cost of apartments in big cities is well beyond young couples' means.
Beijing has one of the most expensive real-estate markets in the world relative to the income of its citizens. Calculations based on Soufun data show that in the opening months of 2006 an average-price new apartment in China's capital would cost around $100,000—the equivalent of 32 years' disposable income for the average resident. By 2011, the average price had more than doubled to $250,000, but relatively modest increases in income mean it would now take 57 years of saving for the average resident to cover the cost.
As a caveat here, it's always extremely difficult to tell just how much power the Chinese governent has to implement capital controls. On the one hand, I suppose you could point to all the tightening measures put in place and argue that these are good measures that will keep real estate prices from spiraling out of control. On the other hand, historically there have often been instances of governments trying to tighten credit right as they are headed into the storm.
The Fed tightened credit going into the tech bubble, and credit was shrinking back in mid-2007, when names like Denninger, Shedlock, and Schiff were dominating the blogosphere. (Anyone remember the " Punch Bowl Caucus" from August 2007?)
Chinese policymakers have much more freedom to reflate the hell out of everything by fiat, however, so even if they can't prevent the bubble from popping, they do have much greater power and flexibility (than say, Japan in 1990 or the U.S. in 2008) when it comes to how they respond to it.
Even so, if construction really accounts for 13% of economic activity, it's really hard to see what the government can coerce it's citizens to keep doing. A massive currency devaluation would help keep many workers competitive for producing exports, but world demand isn't exactly what it used to be, and might get dragged down in tandem with the Chinese economy itself.
We'll see...
Posted on 6/8/11 at 10:50 pm to Doc Fenton
quote:
Beijing has one of the most expensive real-estate markets in the world relative to the income of its citizens. Calculations based on Soufun data show that in the opening months of 2006 an average-price new apartment in China's capital would cost around $100,000—the equivalent of 32 years' disposable income for the average resident. By 2011, the average price had more than doubled to $250,000, but relatively modest increases in income mean it would now take 57 years of saving for the average resident to cover the cost.
That doesn't surprise me. In the last ten years Beijing's population has grown nearly 50%, to just under 20 million.
By comparison-
A city with a population greater than NY, LA, & Houston combined, has added the equivalent of Chicago, Philly, Dallas, Seattle, & Boston. All within a decade.
Posted on 6/8/11 at 10:50 pm to Doc Fenton
After seeing that special where they showed just how many of these units are empty, how much they are priced for and how many more they are still building it just seems to me that it would be almost impossible to accurately value ANYTHING in China related to that market with the power they have to just make shite up.
For those more financially savvy, is it even possible to value things over there when the government is seemingly breaking every tenant of financial transparency and common sense?
For those more financially savvy, is it even possible to value things over there when the government is seemingly breaking every tenant of financial transparency and common sense?
Posted on 6/9/11 at 8:11 am to Simon Phoenix
Google "China ghost cities" if you want your mind to be blown.
Posted on 6/9/11 at 10:30 am to GulfCoastPoke
The Ghost cities are pretty horrifying...mostly the scale of the problem.
How would this affect US Treasury securities held by China?
How would this affect US Treasury securities held by China?
Posted on 6/9/11 at 11:42 am to GulfCoastPoke
quote:
Google "China ghost cities" if you want your mind to be blown.
That was the special I was talking about.
It has to come home to roost at some point, but when you have complete control of the economy like they do, they can hide, stall, etc, etc much longer than say our government could attempt to pull off.
Posted on 6/9/11 at 3:57 pm to TigerintheNO
quote:
By comparison-
A city with a population greater than NY, LA, & Houston combined, has added the equivalent of Chicago, Philly, Dallas, Seattle, & Boston. All within a decade.
Christ almighty, that is insane. Beijing must be surreal.
Posted on 6/9/11 at 4:11 pm to GulfCoastPoke
quote:
Google "China ghost cities" if you want your mind to be blown.
Unreal
Posted on 6/10/11 at 8:42 am to I Love Bama
Some interesting follow up articles if you're interested...
Hong Kong Raises Down Payments on Home Loans to Cool Real Estate Market
Hong Kong Banks’ Rate Increases Take Steam Out of Home Boom
Hong Kong Raises Down Payments on Home Loans to Cool Real Estate Market
Hong Kong Banks’ Rate Increases Take Steam Out of Home Boom
Posted on 6/10/11 at 12:08 pm to GulfCoastPoke
I had no idea it was that bad.
Posted on 6/10/11 at 12:24 pm to kfizzle85
quote:It is. I've worked there twice over the past few years and it's a nightmare.
Christ almighty, that is insane. Beijing must be surreal.
I was staying at a 5-star hotel in the "nice" area, near the Forbidden Palace and Tiananmen Square, and whenever I went out for a walk, it was like being in an ant hill. The air pollution was suffocating at times (I was there in late May on one of my trips and the weather was already pretty hot and humid). I could actually "taste" the air I was breathing.
And crossing a major street on foot? Forget about it!
It wasn't the cars I was afraid of. They would stop at the red lights.
It was the thousands of bicyclists who ignored red lights and would barrel down on anyone and anything in their path, all the while ringing those annoying bells on their handle bars.
Beijing also was the only place I've worked where I had something confiscated by the government: a disposable film camera I'd bought at a kiosk because I had forgotten to bring my digital camera. Apparently I took a photo of something I was not supposed to take a picture of. So my "handler" at work told me it would be his pleasure to see that my film got developed and returned to me before I left to come home. I told him that was a very nice offer but not necessary. Then he said, "Sorry, but I insist. Please give me your camera."
I got the message. I never got any of my pictures back.
I think I know what it was they didn't want me to have a picture of but it was so silly (I took a picture of a two-person, ultra-light plane at an amusement park which clipped the top of a tree at the end of the 'runway' and crashed on take off, injuring the pilot and the passenger), I'm not sure that is what it was. It's the only thing that might have been a little embarrassing for them if I were to put it on the internet, I suppose.
Posted on 6/10/11 at 12:43 pm to LSURussian
Your handler was likely in "The Party". My best friend lives over there and he's told me about how the gov't infiltrates Universtities to select the next generation of leaders loyal to the communist state. Pretty crazy.
Posted on 6/10/11 at 12:49 pm to GulfCoastPoke
Scary amount of brainwashing.
The Chinese students that study abroad in America and hear about Tiananmen square for the first time in their lives are in shock.
The Chinese students that study abroad in America and hear about Tiananmen square for the first time in their lives are in shock.
This post was edited on 6/10/11 at 12:51 pm
Posted on 6/10/11 at 1:49 pm to GulfCoastPoke
quote:Oh, no doubt about it. He told me his dad was a former consulate official in Washington, DC. He basically went through primary school in the U.S., which meant he spoke perfect, unaccented English, unlike me.
Your handler was likely in "The Party".
The first time I said "Ya'll" he said, "Excuse me, what word was that you just said?"
Posted on 6/10/11 at 7:30 pm to GulfCoastPoke
quote:
Google "China ghost cities" if you want your mind to be blown.
Margaret Brennan reporting for Blooomberg TV: LINK.
Posted on 6/14/11 at 3:24 pm to Doc Fenton
Posted on 6/14/11 at 9:54 pm to kfizzle85
The poliboard is going through an intense period of deep navel-gazing, socializing, and random baiting, at the moment, and cannot be bothered by actual events.
Posted on 6/14/11 at 11:34 pm to Doc Fenton
Posted on 6/15/11 at 1:58 pm to Doc Fenton
I can't think of a single centrally planned economy that has ever worked.
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