Mish recently posted a synopsis of an article about things happening in China:
- Year-on-year sales in Q1, for all real estate, was down 14.6%.
- Residential property sales were down 17.5%
- Office sales were down -10.2%
- Sales in January-February were a disaster, falling 20.9% overall, compared to the first two months of 2011, -24.7% for residential.
- Total amount of floor space “for sale” was up 35.5%, compared to the same date last year
- Floor space of residential units “for sale” grew 47.4%.
- At the end of 2011, total floor space “under construction” was roughly 4.6 times the floor space sold
- A year and a half worth of excess inventory is hidden somewhere in the pipeline
- New starts in April fell 14.6% year-on-year and 27.0% month-on-month, for property as a whole
- Housing starts fell -14.4% year-on-year and -23.4% month-on-month
- Office starts fell -21.0% year-on-year in April, and -45.1% compared to March
- Retail property starts fell -18.7% year-on-year, and -36.8% compared to March
- Land sale revenues in April (RMB 27 billion) were down -54.7% compared to April last year
- Foreign funding for property development was down -91.4% in March and -80.8% in April, compared to the same months last year.
Clearly a crash is underway. The above stats also show the soft-landing thesis is written on toilet paper.
Clearly a big reset is happening in China.
Michael Pettis is betting on an average GDP growth of 3 percent over the next 10 years. I’m with him on that.
China’s massive real estate bust has only just begun to unravel.
In light of that, it’s interesting to see the Chinese leadership take the exact opposite view to the US government’s regarding housing prices:
China’s leaders affirmed they will stick next year with a campaign to bring down property prices even as a “very grim” global outlook threatens growth in the second-largest economy.
The nation will target “basically stable” consumer prices and “unswervingly” implement real-estate curbs, according to a statement after an annual economic planning meeting in Beijing. At the same time, officials will seek “steady and relatively fast growth,” Xinhua News Agency said.
Premier Wen Jiabao’s officials may limit the scale of monetary and fiscal easing to support growth as officials grapple with elevated house prices and local-government debt burdens after record lending in 2009 and 2010. So far, the government has cut banks’ reserve requirements, while leaving interest-rates unchanged at a three-year high.
I don’t think I’ve heard a single US politician in any position of power even hint at the idea that maybe it’s not only desirable but necessary for home prices to come down in order for any meaningful recovery to begin.
The respect for concept prices as a steering and balancing indicator for entrepreneurs and capitalists in an economic system is one of the most basic pillars for understanding the economics of voluntary action, that is free market capitalism.
It’s a bit misleading for the Chinese leadership to say they are going to “bring down” property prices. Property prices are going to come down no matter what they do, the question is just how fast.
It’s possible the the Chinese have learned from the recent attempts of the US and European governments to support or stimulate housing prices and the not so recent ones next door in Japan, and figured if prices are going to come down anyway why not take credit for falling prices and even make it look like it’s them making this happen deliberately?
From China Financial Daily:
Living in the edge of the Ordos storm , Ordos was beset with a different version of real estate lending Wenzhou panic . For example, local ” Jinxin Han Lin Yuan ” project , its second-hand house prices are around 10,000 yuan, while the market price now only is 3750 yuan.
Disgruntled over falling prices, Chinese property owners smashed a showroom:
A group of around 400 homeowners in Shanghai demonstrated publicly and damaged a showroom operated by their property developer after the company said it cut prices. Home buyers had wanted to speak with the developer to refund or cancel their contracts but were unsuccessful, according to local media. One report said the price cuts exceeded 25% per square meter.
That’s 25% overnight, mind you!
MarketWatch notes that the bubble has begun to burst:
Take a look at the Chinese situation. The bubble has been as big as any we’ve seen.
Ten years ago, homes in Shanghai sold for about six times an average family’s income. Today that’s 13 times. Shenzhen has gone from five times to 14 times. These are off-the-charts absurd ratios. This is a bona fide mania.
And it works fine until the music stops.
Where are we now?
Prices have started falling. Now, fewer than 46 of 70 major cities saw prices stall or decline in September, reports the National Statistical Bureau. As recently as January the number was just 10.
And the FT writes China property developer warns on price falls:
A 30 per cent drop in property prices would precipitate a collapse in fixed investment in China and the country’s investment-driven economy would experience a so-called hard landing after years of annual growth above 9 per cent, according to UBS economist Wang Tao.
There will be no magic cure for China’s housing, stock, and credit bubbles. Prepare for a hard landing in China and thus a hard landing in stocks and commodity prices (except gold) …
Buckle up, the Chinese bubble is popping:
The average transaction price of commercial residential properties in Beijing for the week ended May 9 fell 1,790 yuan per square meter or 9.6 percent week-on-week to 16,898 yuan per square meter, reports The Beijing News, citing statistics released by Beijing Real Estate Information Network.
Compared with the week ended April 11, the average transaction price of commercial residential properties in Beijing plunged 31.43 percent to 7,744 yuan per square meter.
In the last weeks of April, the transation volume of commercial residential properties in Beijing decreased by 10.34 percent, 11.39 percent and 30.82 percent respectively. Average transaction price was flat at between 22,000 yuan to 23,000 yuan per square meter.
The share price of Poly Real Estate (600048) was down 2.65 percent to close at 10.66 yuan today.
The share price of Beijing Capital Development (600376) was down 4.16 percent to close at 13.26 yuan today.
There are several property bubbles around the world that are ready for a massive correction, just as US home prices slip back into decline. This is just the beginning …