Property Prices Collapse in China – “When Beijing’s pet analysts are saying prices could halve in a few months, we can be sure they are thinking the eventual sell-off will be worse.”

“Residential property prices are in freefall in China as developers race to meet revenue targets for the year in a quickly deteriorating market. The country’s largest builders began discounting homes in Shanghai, Beijing, and Shenzhen in recent weeks, and the trend has now spread to second- and third-tier cities such as Hangzhou, Hefei, and Chongqing. In Chongqing, for instance, Hong Kong-based Hutchison Whampoa cut asking prices 32% at its Cape Coral project. “The price war has begun”…
Citi’s Oscar Choi believes prices will decline another 10% next year, but that’s a conservative estimate. Even state-funded experts are more pessimistic. For example, Cao Jianhai of the prestigious Chinese Academy of Social Sciences sees price cuts of 50% on homes if the government continues its cooling measures.
When Beijing’s pet analysts are saying prices could halve in a few months, we can be sure they are thinking the eventual sell-off will be worse.”

– excerpted from ‘Property Prices Collapse in China. Is This a Crash?’, Gordon Chang, Forbes, 6 Nov 2011

Effects on Vancouver RE?:
1. A very, very small direct negative effect (a handful of prospective buyers who may have been dependent on funds from these Chinese projects will now be unable to buy here)
2. A very much larger indirect negative psychological effect:
— Things “Chinese” and things “Real Estate” can ‘crash’.
— ‘China’ feels closer to home for Vancouverites than does ‘Ireland’, ‘Spain’, ‘Phoenix’ etc.
— The simple experience of hearing ‘32%-off’ and “price cuts of 50%” has a bracing effect.
– vreaa

23 responses to “Property Prices Collapse in China – “When Beijing’s pet analysts are saying prices could halve in a few months, we can be sure they are thinking the eventual sell-off will be worse.”

  1. Or… Causes greater flight of capital to “stable” markets. Irrational thinking is irrational.

    SMEs are getting pinched bad, offmarket credit is causing cash flow problems. That said, I expect a few more years of gas in China’s tank before the end.

    • Agree regarding possibility of even more flight capital.
      The ‘funnel effect’ we’ve heard about recently.

    • The YellowEmperor’s ‘gas tank’ may well be closer to empty than many think…

      [BloomBerg] – China Credit Squeeze Prompts Suicides

      …”Giving up the store would have made it impossible to pay back another 130 creditors, Zhong said. He’d borrowed 30 million yuan ($4.7 million) at interest rates as high as 7 percent a month to expand the business. Many of the lenders were elderly neighbors who’d mortgaged their homes.

      At least 90 bosses in similar situations to Zhong have fled the city since April, and two killed themselves, according to Zhou Dewen, head of a small business association in Wenzhou. One was shoemaker Shen Kuizheng, who jumped to his death from his 22nd-story home on Sept. 21, he said.

      Wenzhou’s 400,000 businesses are facing financial hardship because of rising costs, soaring black market interest rates and a sudden credit squeeze, Zhou said. Similar problems are happening across China because private enterprises in China rely on underground borrowing rather than banks to operate, he said.”…

      http://tinyurl.com/7asbptz

    • china central planning voluntarily tightened credit. they still have the option to loosen. everyone east/west/north/south will take a hit as peak credit plays out. the emerging markets will probably come out in better shape. they did not have ppty bubbles to the same extent (read malinvestment to the same extent) and they do not have sticky entitlement issues to resolve. that is several steps ahead. at present still in the process of papering over sovereign debt pbs. what is relevant about this for local real estate … once prices begin decline, availability of credit for ppties will fall significantly except where sovereign agrees to guarantee the note since private capital will no longer assume the risk.

  2. And in other news Rihanna is about to lose $2.4m on a two year old house where she is truly “under water”. http://inmusic.ca/news_and_features/news/rihanna_to_lose_24m_on_sale_of_house/a82a3477

  3. Realtors in some circles are spinning China’s troubles as opportunities for the local real estate market. Clearly there is a financial intermediation problem (as Jesse alludes to) and we need some serious political will to confront.

    • Both Robertson and Anton are not in favour of curbs against foreign ownership.

      I can’t say I’m too fond of foreign ownership restrictions myself, only because they’re complicated and messy to enforce, with lots of loopholes and collateral damage wreaked on those “unintended” to be affected (you know, the “non-speculators”).

      If Vancouver were interested in growing its economy into a world power it needs to confront its demons, and I’m sorry to say they’re not limited to the mythical planeloads of foreign invaders at the gates.

  4. Basement Suite PhD

    “The simple experience of hearing ’32%-off’ and “price cuts of 50%” has a bracing effect.”

    It gives one hope. This is great news.

  5. 4SlicesofCheese

    I asked my friend who is working in Shanghai if he heard anything about the economy in China yesterday, his response

    “its ok i think, didn’t hear much about it” and he moved to shanghai because he is an aspiring entrepreneur.

    Maybe he just doesn’t follow the news or maybe they aren’t reporting about it locally. Will follow up some more.

    • Funny you should say that 4Slices… for, as it happens, estate agents in that city are in the midst of their very own “ShangHai Surprise” ( and destined, perhaps, for an even worse ending than the eponymous Madonna/Penn vehicle)… Spoiler alert: leader illustration features ShangHai Realtors reduced to hustling traffic/passersby alike with ‘flash cards’ – which, of course, begs the question: Will this new guerilla property marketing tactic gain a foothold in YVR?…

      [ChinaDaily] – Real estate meltdown fears

      …”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. An industry insider, who declined to be named, estimated that around 3,000 outlets might close this year, leaving some 50,000 real estate brokers facing redundancy.”…

      http://tinyurl.com/8xvw8op

  6. I don’t think the owner of a home in China is the same person as the Chinese buyer of Vanc0uver. Best way to protect your wealth during times of trouble is to buy a hard asset. The “not so wise” Chinese buyers might catch on that their peers have been investing in a market that is more secure and isn’t tanking. I’d put equal odds of the Chinese situation doing as much to bolster Vancouver as it does to create a downturn.

    • denial + twisted logic. hard assets preclude excessive leverage. inflatable assets (eg. speculative residential real estate) at a time of peak credit (the kind created out of thin air and unbacked by real savings) are the opposite. for real estate as a hard asset, get a farm at a low earnings multiple.

    • Yeah right – because Chinese that speculate in Vancouver real estate live in tents and caves. If you are taking a bath on your local investments, do you then go to a foreign market to buy a 1% cap when its obvious that prices have peaked? Only you could be that stupid!

    • eyesthebye, only you could be so stupid.

  7. Chinese government is between a rock and a hard place. To be honest, the central government wants to curb housing prices (which is significantly higher on a price to income or price to rental ratio and appreciation however the local officials could care less. So they had to bring in wholesale centralized strategies to deal with the issue when they realized that the political rhetoric was not getting through to the local officials. Btw, I am not sure why everyone is thinking their policies have anything to do with foreign investment. Their policies have nothing to do with foreign ownershp, they are trying to curb domestic ownership.

    @airedales, the reason why they peg their currency is more to do with exports than inflow of capital.

    However, the moment that the central government decides that it has overdone this, then it will loosen the credit (which is still extremely tight by western standards) and let housing market appreciate again. I think the government is willing to standby and watch a 25 to 30% correction, but anything more than that, they might step in and put a stop to it. There is simply too much money and stability at stake. Besides the fact that their economy will still be moving along at close to 10% pace.

    • …”rock and a hard place.”…

      Correct.

      In other news, the ‘quants’ have some interesting new statistical insights on the migratory patterns and furture intentions of the [soon to be] OverseasChinese [Formula1, et al are going to like this – DunbarSouthlands/WestSide Wannabes, not so much; NoteToEd: which is why ‘Nem’ predicts a bifurcated outcome]…

      [G&M] – Is China in danger of losing its wealthy class?

      “In April, the U.S. consulting firm Bain & Co. and China Merchants Bank released a study that disclosed that about half of China’s richest people were thinking of emigrating. Now, another study broadly confirms those findings…. The study found that a third of such high net worth individuals already own assets overseas, mostly in real estate. Another 30 per cent are considering acquiring such assets within three years. Acquiring overseas assets is a step toward applying for investment immigration. The reasons wealthy people want to leave China, mostly for the U.S. and Canada, include access to better education overseas, better living conditions and concerns about the security of their assets on the mainland. The fact that such a high proportion of the country’s most successful citizens want out clearly suggests they perceive problems in China.”…

      http://tinyurl.com/6qvb7xf

      • Of course, the preponderance of Chinese émigrés are not driving Bentley Continentals and FlashingPrada…

        [BloomBergBusinessWeek] – Italian Jobs, Chinese Illegals:
        An influx of Chinese immigrants is transforming Italy’s economy and sparking a cultural backlash. Is this Europe’s future?

        “Among those who would be searching for a new home was a pallid 35-year-old father of three who had taken the Italian name Enzo. Five years ago, his parents, farmers in the Fujian region of China, had saved €8,000 to send him to the factories in Prato. Enzo is what the Italians call clandestino—undocumented—and like most of the Chinese in Prato illegally, he entered on a tourist visa and simply stayed. But rather than working for Italians, he found himself employed by other Chinese immigrants who had come to Italy themselves and were taking over the factories. It was there that he took his Italian name and met his future wife, a small Chinese woman in jeans and a ponytail who stood wordlessly behind him as he told his story, speaking Chinese to a police translator. This raid wasn’t the first they’d lived through; they had been chased from another illegal workplace a year before. “Italy is not good for us now,” Enzo said. “I want to take my children back to China. We don’t have a hope of living here.”…

        http://tinyurl.com/ckxzu3d

      • And today’s last… a Sweet ‘n Sour ‘morsel’ from Fujian for those who enjoy their humour… Black.

        [BBC] – Taiwan man says China police kept his amputated hand

        “A Taiwanese man has returned from a visit to mainland China saying police there refused to return a hand that had to be amputated after a robbery. Hu Chi-yang, 60, said three robbers tried to cut it off so they could take his Rolex watch and gold ring in Putian in south-eastern Fujian province. Mr Hu said police wanted to keep the hand as evidence.”…

        http://tinyurl.com/chqr7cr

    • If fighting inflation is your primary goal then you let your domestic currency appreciate. China already recognizes that its export model is broken because global demand is declining with credit cycle contraction. China is constraining money supply with high borrowing rates and increasing reserve requirements in it’s fight against inflation because the result is lower hot money flows than a currency appreciation.

      • Of course, but are they doing that? If they wanted their currency to rise then they could just unpeg the RMB then you will see how much it is at. Seriously, if the RMB was not pegged to the USD, it would probably be at about 3,4 to 1 rather than 6 to 1. The US government has a huge problem with China devaluing their own currency currently and have been pushing hard for them to revalue their currency. I think what you are suggesting is exactly what the American government wants, but obviously the Chinese is not biting.

      • Btw, I would love for them to unpeg the RMB, that would make a lot of investors who have been betting on it very rich. Unfortunately, I don’t think it will happen.

  8. jl, usgov is just trying to deflect blame from its own failed policies by labeling china a currency manipulator. the fed is the in fact the biggest currency and credit manipulator. it’s not clear at all that the rmb would freely revalue up. even if it did significantly, like 2X, labor costs would still be much lower in china vs us.

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