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China’s Property Bubble Has Already Popped, Report Says

45 points by tokenadult 13y ago

dredmorbius 13y ago
In the event WSJ are pulling paywall shenanigans (link WFM), an alternative: http://language.chinadaily.com.cn/portal.php?mod=view&aid=217344 http://language.chinadaily.com.cn/portal.php?mod=view&aid=21...
est 13y ago
China gonna crash anytime now!!! For real tis time?
- seanmcdirmid 13y ago
  Overheard in 2006: USA housing market gonna crash anytime now!!! For real this time? A crash will happen sometime in the future, the only question is about timing.
  - MarkMc 13y ago
    I have to add an amusing quote from John Kenneth Galbraith about the sky-high stock prices before the crash of 1929: By far the greatest force for sobriety was the New York Times. Under the guidance of the veteran Alexander Dana Noyes, its financial page was all but immune to the blandishments of the New Era. A regular reader could not doubt that a day of reckoning was expected. Also, on several occasions it reported, much too prematurely, that the day of reckoning had arrived. Indeed the temporary breaks in the market which preceded the crash were a serious trial for those who had declined fantasy. Early in 1928, in June, in December, and in Februrary and March of 1929 it seemed that the end had come. On various of these occasions the [New York] Times happily reported the return to reality. And then the market took flight again. Only a durable sense of doom could survive such discouragement. The time was coming when the optimists would reap a rich harvest of discredit. But is has long since been forgotten that for many months those who resisted reassurance were similarly, if less permantently, discredited. To say that the Times, when the real crash came, reported the event with jubilation would be an exaggeration. Nevertheless, it coverted it with an unmistakable absence of sorrow - John Kenneth Galbraith, "The Great Crash 1929" http://www.amazon.com/Great-Crash-1929-Kenneth-Galbraith/dp/0547248164 http://www.amazon.com/Great-Crash-1929-Kenneth-Galbraith/dp/...
rahimnathwani 13y ago
From the article: "Average home prices, meanwhile, rose 0.1% in April from March and 9.1% from a year earlier."
- seanmcdirmid 13y ago
  On very low volume in a very manipulated market. Pay attention to volume when looking at these numbers; you can't hold a property forever waiting for prices to rise (well, you can hold it a lot longer than in the west since China lacks property taxes).
- simonh 13y ago
  So on average house prices had risen by around 0.75% per month over the previous year, and that's now collapsed to barely above zero, and in fact to a rate below inflation and so a drop in value in real terms. Not good. Also that's an average. This means there must be plenty of regions where property prices have actually dropped. That's new.
NicoJuicy 13y ago
This is what a friend of mine told me, don't know if it's true, it could explain the massive ammount of buildings. Housing is build everywhere with banking money, in China it's possible to borrow money and not paying it back. (mostly friends of the governement who do this) How? They invest 60% of a loan in building a property, they finish it in bad quality and put 40% in their own pocket. The bank takes the building to get their money back... It seems to be a regular case in China, off course something's going to pop after a while.
DominikR 13y ago
So the worst case scenario is that Chinas GDP growth drops to "only" 6%, and will become the largest economy in the world by the end of this year. We'd be happy in Europe with 3% GDP growth, and I'm sure the US wouldn't be unhappy about that too.
- Lost_BiomedE 13y ago
  China is in for some bad times. They have pumped way more money into their economy than the FED has. A lot of that money went into real estate: China's 15 Trillion pump: http://www.zerohedge.com/news/2013-11-25/chart-day-how-chinas-stunning-15-trillion-new-liquidity-blew-bernankes-qe-out-water http://www.zerohedge.com/news/2013-11-25/chart-day-how-china...
- seanmcdirmid 13y ago
  China needs at least 6 or so % to keep up with new workers coming into the labor market; also, wealth is very unevenly distributed, which means any slowdown in growth will hit lower income workers especially hard. The party is extremely aware that 3% growth in China could lead to another revolution.
- simonh 13y ago
  The Chinese government believes that China needs a growth rate close to 10% in order to absorb expansion in the available labour force. Already Chinese universities are churning out far more graduates than there are new graduate level jobs. There's also a steady stream of labor from the countryside seeking work in the cities and factories. The economy has barely been keeping up with demand for jobs as it is. The other problem is that local governments in China are massively overextended with vast outstanding debts, mostly backed by property. Chinese local officials are routinely rotated between regions, so they have little long term commitment to the area they run and are only interested in results during their tenure. This has lead to a generation of highly short-term management decisions, ramping up debt to fund prestige projects, with chronic lack of long term planning or infrastructure investment. Much of Chinese domestic driven growth is spending wasted on white elephant construction projects. When those turn out to be worthless, the entire Chinese domestic economy will crash. A third issue is that up to half of the populations of Chinese cities are technically migrant labour and, even if they've lived in the city for generations, they are technically not residents and have no claim on local services or any welfare support and no pensions. When the bubble bursts they'll be left with nothing. Either the flow of labour from the countryside to the cities will reverse, or the system will break.
nrao123 13y ago
Here is Chanos in Nov 2010: -5×5 office cubicle for every man/woman/child in China -New Residential real estate accounts for 15% of GDP -60% of GDP is towards fixed asset investment -Buyers in China purchased 44% more residential space than they did in 2008 -Dubai during its peak had 240 sq. Mtrs/1million dollars in GDP. China has 4x that. -Lending went up 95% yoy 2009-2008 and up 60% through 2010 -Perpetual China Bull – Goldman is forecasting a 10-20% decline in housing prices in 2011. -Chinese vacancy rates are accepted to be unusually high but exact numbers are extremely hard to find. The Chinese investors essentially treat real estate investing as investing in Gold without even bothering to rent them out because of the unusually low rents. http://finance.fortune.cnn.com/2010/11/17/chanos-vs-china/ http://finance.fortune.cnn.com/2010/11/17/chanos-vs-china/
- simonh 13y ago
  Rental rates indicate the real economic value of a property, as against it's notional or book value as an investment. If rents are pitifully low even during an economic boom, that doesn't bode well for property prices when there's a bust.
- prewett 13y ago
  I'm not sure I understand the relationship of this Chanos article from 2 years ago to the posted article, whcich details comments from the Nomura Group, which, as far as I can tell, has no relationship to Chanos. I also disagree with some of Chanos' points regarding rent. At least in Beijing, rent is quite expensive, and unaffordable for most Chinese. Unmarried people live with multiple roommates in places that, to the American eye, look like slums. Rents in Beijing went up an average of 20% last year (although we talked my landlord down to 10%, I think). Now it might be that rents as a proportion of the owner's income is not worth the hassle, thay could very well be. But rents in Beijing are not affordable. Regarding vacancies, the common wisdom among expats in Beijing is that the reason is that people consider apartments to lose value if it is rented. That might be related to the reputation of Chinese renters; I have heard from a number of sources that renters in China often trash the place, although I have no way to verify that. Anyway, if the point of the parent post is to say that this article is incorrect because some cried wolf two years ago, I strongly disagree. 20% rent increase per year (or even 10%) is not sustainable. Nor is that exponential curve in the article sustainable. The crash may or may not have happened, and may or may not happen in the future, but the current situation cannot continue forever.
tomelders 13y ago
Fortunately for us in the west, China is more than willing to let millions of it's own people starve while it's poor economic policies right themselves. It's a bitter pill to swallow, but we may well be shielded from this nascent catastrophe because of China's disregard for human life.
- Gigablah 13y ago
  You seem to demonstrate the same callousness towards human life.
  - tomelders 13y ago
    On second reading I see your point. I thought I was being sardonic but that didn't come across. But I stand by the comment none the less. China has set its own precedent, and I see little reason to predict they will break with tradition. http://en.wikipedia.org/wiki/Great_Leap_Forward http://en.wikipedia.org/wiki/Great_Leap_Forward
deleted 13y ago
[deleted]

45 points by tokenadult 13y ago

In the event WSJ are pulling paywall shenanigans (link WFM), an alternative: http://language.chinadaily.com.cn/portal.php?mod=view&aid=217344 http://language.chinadaily.com.cn/portal.php?mod=view&aid=21...

est 13y ago

China gonna crash anytime now!!! For real tis time?

seanmcdirmid 13y ago
Overheard in 2006: USA housing market gonna crash anytime now!!! For real this time? A crash will happen sometime in the future, the only question is about timing.
- MarkMc 13y ago
  I have to add an amusing quote from John Kenneth Galbraith about the sky-high stock prices before the crash of 1929: By far the greatest force for sobriety was the New York Times. Under the guidance of the veteran Alexander Dana Noyes, its financial page was all but immune to the blandishments of the New Era. A regular reader could not doubt that a day of reckoning was expected. Also, on several occasions it reported, much too prematurely, that the day of reckoning had arrived. Indeed the temporary breaks in the market which preceded the crash were a serious trial for those who had declined fantasy. Early in 1928, in June, in December, and in Februrary and March of 1929 it seemed that the end had come. On various of these occasions the [New York] Times happily reported the return to reality. And then the market took flight again. Only a durable sense of doom could survive such discouragement. The time was coming when the optimists would reap a rich harvest of discredit. But is has long since been forgotten that for many months those who resisted reassurance were similarly, if less permantently, discredited. To say that the Times, when the real crash came, reported the event with jubilation would be an exaggeration. Nevertheless, it coverted it with an unmistakable absence of sorrow - John Kenneth Galbraith, "The Great Crash 1929" http://www.amazon.com/Great-Crash-1929-Kenneth-Galbraith/dp/0547248164 http://www.amazon.com/Great-Crash-1929-Kenneth-Galbraith/dp/...

rahimnathwani 13y ago

From the article: "Average home prices, meanwhile, rose 0.1% in April from March and 9.1% from a year earlier."

seanmcdirmid 13y ago
On very low volume in a very manipulated market. Pay attention to volume when looking at these numbers; you can't hold a property forever waiting for prices to rise (well, you can hold it a lot longer than in the west since China lacks property taxes).
simonh 13y ago
So on average house prices had risen by around 0.75% per month over the previous year, and that's now collapsed to barely above zero, and in fact to a rate below inflation and so a drop in value in real terms. Not good. Also that's an average. This means there must be plenty of regions where property prices have actually dropped. That's new.

NicoJuicy 13y ago

This is what a friend of mine told me, don't know if it's true, it could explain the massive ammount of buildings. Housing is build everywhere with banking money, in China it's possible to borrow money and not paying it back. (mostly friends of the governement who do this) How? They invest 60% of a loan in building a property, they finish it in bad quality and put 40% in their own pocket. The bank takes the building to get their money back... It seems to be a regular case in China, off course something's going to pop after a while.

DominikR 13y ago

So the worst case scenario is that Chinas GDP growth drops to "only" 6%, and will become the largest economy in the world by the end of this year. We'd be happy in Europe with 3% GDP growth, and I'm sure the US wouldn't be unhappy about that too.

Lost_BiomedE 13y ago
China is in for some bad times. They have pumped way more money into their economy than the FED has. A lot of that money went into real estate: China's 15 Trillion pump: http://www.zerohedge.com/news/2013-11-25/chart-day-how-chinas-stunning-15-trillion-new-liquidity-blew-bernankes-qe-out-water http://www.zerohedge.com/news/2013-11-25/chart-day-how-china...
seanmcdirmid 13y ago
China needs at least 6 or so % to keep up with new workers coming into the labor market; also, wealth is very unevenly distributed, which means any slowdown in growth will hit lower income workers especially hard. The party is extremely aware that 3% growth in China could lead to another revolution.
simonh 13y ago
The Chinese government believes that China needs a growth rate close to 10% in order to absorb expansion in the available labour force. Already Chinese universities are churning out far more graduates than there are new graduate level jobs. There's also a steady stream of labor from the countryside seeking work in the cities and factories. The economy has barely been keeping up with demand for jobs as it is. The other problem is that local governments in China are massively overextended with vast outstanding debts, mostly backed by property. Chinese local officials are routinely rotated between regions, so they have little long term commitment to the area they run and are only interested in results during their tenure. This has lead to a generation of highly short-term management decisions, ramping up debt to fund prestige projects, with chronic lack of long term planning or infrastructure investment. Much of Chinese domestic driven growth is spending wasted on white elephant construction projects. When those turn out to be worthless, the entire Chinese domestic economy will crash. A third issue is that up to half of the populations of Chinese cities are technically migrant labour and, even if they've lived in the city for generations, they are technically not residents and have no claim on local services or any welfare support and no pensions. When the bubble bursts they'll be left with nothing. Either the flow of labour from the countryside to the cities will reverse, or the system will break.

nrao123 13y ago

Here is Chanos in Nov 2010: -5×5 office cubicle for every man/woman/child in China -New Residential real estate accounts for 15% of GDP -60% of GDP is towards fixed asset investment -Buyers in China purchased 44% more residential space than they did in 2008 -Dubai during its peak had 240 sq. Mtrs/1million dollars in GDP. China has 4x that. -Lending went up 95% yoy 2009-2008 and up 60% through 2010 -Perpetual China Bull – Goldman is forecasting a 10-20% decline in housing prices in 2011. -Chinese vacancy rates are accepted to be unusually high but exact numbers are extremely hard to find. The Chinese investors essentially treat real estate investing as investing in Gold without even bothering to rent them out because of the unusually low rents. http://finance.fortune.cnn.com/2010/11/17/chanos-vs-china/ http://finance.fortune.cnn.com/2010/11/17/chanos-vs-china/

simonh 13y ago
Rental rates indicate the real economic value of a property, as against it's notional or book value as an investment. If rents are pitifully low even during an economic boom, that doesn't bode well for property prices when there's a bust.
prewett 13y ago
I'm not sure I understand the relationship of this Chanos article from 2 years ago to the posted article, whcich details comments from the Nomura Group, which, as far as I can tell, has no relationship to Chanos. I also disagree with some of Chanos' points regarding rent. At least in Beijing, rent is quite expensive, and unaffordable for most Chinese. Unmarried people live with multiple roommates in places that, to the American eye, look like slums. Rents in Beijing went up an average of 20% last year (although we talked my landlord down to 10%, I think). Now it might be that rents as a proportion of the owner's income is not worth the hassle, thay could very well be. But rents in Beijing are not affordable. Regarding vacancies, the common wisdom among expats in Beijing is that the reason is that people consider apartments to lose value if it is rented. That might be related to the reputation of Chinese renters; I have heard from a number of sources that renters in China often trash the place, although I have no way to verify that. Anyway, if the point of the parent post is to say that this article is incorrect because some cried wolf two years ago, I strongly disagree. 20% rent increase per year (or even 10%) is not sustainable. Nor is that exponential curve in the article sustainable. The crash may or may not have happened, and may or may not happen in the future, but the current situation cannot continue forever.

tomelders 13y ago

Fortunately for us in the west, China is more than willing to let millions of it's own people starve while it's poor economic policies right themselves. It's a bitter pill to swallow, but we may well be shielded from this nascent catastrophe because of China's disregard for human life.

Gigablah 13y ago
You seem to demonstrate the same callousness towards human life.
- tomelders 13y ago
  On second reading I see your point. I thought I was being sardonic but that didn't come across. But I stand by the comment none the less. China has set its own precedent, and I see little reason to predict they will break with tradition. http://en.wikipedia.org/wiki/Great_Leap_Forward http://en.wikipedia.org/wiki/Great_Leap_Forward

deleted 13y ago

[deleted]