Real Estate Crash Well Underway In China; GDP Crash Will Follow

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.

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Chinese Property Owners Smash Showroom in Protest over Falling Prices; The Chinese Housing Bust is Underway

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.

Property ownsers protest in China

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) …

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