China's housing bubble is losing air

Discussion in 'China' started by nrj, Dec 14, 2011.

  1. nrj

    nrj Stars and Ambassadors Stars and Ambassadors

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    Home prices and sales plunge after China's government intentionally slams on the brakes. Some recent buyers stage demonstrations, destroy real estate offices and demand refunds of up to 40%.

    Reporting from Beijing— Falling home values. Debt-strapped borrowers. Real estate woes dogging the economy. It's old news in the United States, but now the air has started to leak from another great housing bubble — in China.

    Home prices nationwide declined in November for the third straight month, according to an index of values in 100 major cities compiled by the China Index Academy, an independent real estate firm. Average prices in the Shanghai area are down about 40% from their peak in mid-2009, to about $176,000 for a 1,000-square-foot home.

    Sales have plummeted. In Beijing, nearly two years' worth of inventory is clogging the market, and more than 1,000 real estate agencies have closed this year. Developers who once pre-sold housing projects within hours are growing desperate. A real estate company in the eastern city of Wenzhou is offering to throw in a new BMW with a home purchase.

    The swift turnaround has stunned buyers such as Shanghai resident Mark Li, who thought prices had nowhere to go but up. The software engineer closed on a $250,000, three-bedroom apartment in August, only to watch weeks later as the developer slashed prices 25% on identical units to attract buyers in a slowing market.

    Outraged, Li and hundreds of others who paid full price trashed the sales office, scuffled with employees and protested for three days before police broke up the demonstration. Walking away now would mean losing the $75,000 down payment that he borrowed from his working-class parents.

    "I still haven't told them," Li, 29, said of his home's plummeting value. "It will just make them worry, and it's already too late."

    It's all eerily similar to the early stages of the U.S. housing crash. The big difference is that the Chinese government intentionally slammed on the brakes.

    Over the last year it has tightened lending and prohibited the purchase of more than one home in several cities, in a bid to discourage speculators and bring down prices. Chinese authorities say they're trying to tame inflation and defuse public anger over housing costs, the fallout from the government's efforts to stimulate the economy with easy credit during the global financial crisis. They have pledged to keep home buying limits in place for the foreseeable future.

    But concern is growing about Beijing's ability to engineer a soft landing.

    The property sector is a huge employer and now accounts for about one-fifth of China's economic output. Local governments are heavily dependent on land sales to fund public services and to pay off municipal debt. Banks issued record numbers of home mortgages and construction loans, whose collateral is real estate that's now falling in value.

    A real estate crash would reverberate well beyond China. The building binge helped fuel a global boom in raw materials including Brazilian iron ore and Chilean copper. And it would hobble an economy the rest of the world was counting on for new consumers and investment opportunities.

    The Paris-based Organization for Economic Co-operation and Development warned last month that a collapse of some major Chinese real estate developers would put the nation's banks at risk, a threat that's "overshadowing" the economic outlook of the world's second-largest economy.

    Some analysts, however, contend those fears are overblown.

    Hundreds of millions of rural Chinese are projected to move into cities in the coming decades, bolstering demand for new housing.

    And Chinese aren't nearly as leveraged as Americans. First-time buyers are required by law to come up with down payments equal to 30% of a home's purchase price; many put down more. Experts say the government could also lift its buying restrictions.

    "I don't think China is in danger of a U.S.-style housing crash," said Alistair Thornton, a Beijing-based analyst for IHS Global Insight. "They still retain lot of levers of control should the property market slide faster than expected."

    But for now, Thornton said, Beijing is committed to shoring up its credibility after promising to bring housing prices back to Earth. Since the government began opening the sector to private ownership in the 1990s, "the market has only gone up … and they want to put across the message that it's not a one-way bet," he said.

    That's news to millions of Chinese for whom real estate ownership has become an obsession. The mania has cemented itself into the national zeitgeist, inspiring a wildly popular soap opera, songs and even new slang. Debt-strapped home buyers have been dubbed fang nu, or house slaves. Couples who wed without owning a home are said to have a luo hun, or a naked marriage.

    With property values now falling, angry home buyers have staged at least seven demonstrations in the last three months in cities including Beijing and Shanghai. Mobs have destroyed real estate offices and demanded refunds of up to 40% after developers dropped prices for later buyers.

    The protesters have garnered little sympathy on China's microblogs, a Twitter-like national nerve center with 300 million users. Many bloggers have denounced the home buyers as speculators hoping to make a quick buck by flipping units.

    "You deserve this!" read one comment on the most heavily used service, Sina Weibo.

    Such criticism isn't fair, wrote homeowner Wang Zeyi, who bought a unit in the same complex as Li in Shanghai.

    "Most of us home buyers really just bought for ourselves to live in," Wang posted on her Sina microblog. "And overnight, the assets just evaporated."

    The developer, China Vanke Co., told The Times via email that the price reductions were "decided by supply and demand on the market."

    But Li, the software programmer, said he feels cheated.

    "The sales agent told me prices wouldn't go down, that I was getting the best deal," he said. Li plans on marrying his girlfriend this time next year, when the apartment is scheduled to be finished. He'll have to devote half of his $1,500 monthly salary to pay the mortgage.

    Li said he hasn't worked up the nerve to tell his parents how much his apartment has fallen in value — not after they lent him their life savings for the down payment. His father, an electrician, and his mother, a middle school teacher, live in Jiangxi, a poor province southwest of Shanghai. Frugal savers, they insist on walking wherever they can to save on bus fare when they visit their son in the city.

    "I really thought I could save enough for a house," Li said. "But over the years, property prices grew so much faster than my salary. I couldn't play this catch-up game. I had to ask my parents for help or I'd never settle down."

    China's housing bubble deflating - latimes.com
     
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  3. agentperry

    agentperry Senior Member Senior Member

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    sub-prime crisis...here too
     
  4. asianobserve

    asianobserve Elite Member Elite Member

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    China is officially the darkest threat to globalised economy now.
     
  5. SLASH

    SLASH Senior Member Senior Member

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    When will our property bubble burst? Property price are killing at the moment.
     
  6. Armand2REP

    Armand2REP CHINI EXPERT Veteran Member

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    I remember walking the streets of Chinese cities looking at how many realestate offices and pushers were on the streets. Watching most of them close will put over a million people out of work alone, not counting the other hundreds of millions associated with the sector. The real danger of this isn't foreclosure but the damage to local government finances. They control 70% of the Middle Kingdom's GDP. They depend on land sales and the collateral value of property they have backed against these loans. Crashing prices will bankrupt all but the biggest coastal provinces.
     
  7. Yusuf

    Yusuf GUARDIAN Administrator

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    Waiting for the mouthpieces to give their spin to this tale.
     
    Patriot likes this.
  8. RedDragon

    RedDragon Regular Member

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    Good news, after the central government take so many actions, finally they start working.
     
    Tianshan likes this.
  9. thakur_ritesh

    thakur_ritesh Administrator Administrator

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    Land of the GODS - "Dev Bhomi".
    a new one!

    price correction to the extent of 40% is termed "taming inflation and high growth", chinese government is inventing new fundamentals of economics.
     
  10. Ray

    Ray The Chairman Defence Professionals Moderator

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    Let us learn from China's woe.

    It is rather foolish to go rushing in for short time gains and then come a cropper.

    Globalisation is good, but it must be undertaken with all issues kept in mind.

    Let greed not be the Pole Star glibly obfuscated under the vague term of 'progress' that we keep hearing from the corporate lobby and their camp followers!
     
    Patriot likes this.
  11. ice berg

    ice berg Senior Member Senior Member

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    China's housing market: What goes up | The Economist
    China's housing market

    What goes up

    The housing market provides some nasty shocks to China’s new middle classes

    Oct 23rd 2008 | Beijing | from the print edition




    [​IMG]EPA
    HOMEOWNERS in a middle-class district in northern Beijing are angry. The developer of their block of flats has slashed the prices of new flats now on sale. China’s housing market, barely existent a decade ago, is undergoing its first big downturn after years of boom. The earlier buyers want their money back.
    For several years China’s leaders have been trying gently to deflate a housing-market bubble pumped up by huge demand from a fast-growing middle class with few other investment opportunities. In the past few months their efforts have begun to pay off. But economic growth has also begun to slow, the stockmarket is far below last year’s peak and worries are growing about the impact of the global financial crisis. Weaned in unremitting good times, China’s fledgling middle class, whose support the Communist Party sees as crucial, is entering uncharted territory.
    Dozens of homeowners at the Fuli Taoyuan complex in Beijing’s Haidian district have been complaining to their compound’s developer since May, soon after the prices of new apartments were first cut by more than 10%. They are now down to 9,000 yuan ($1,300) per square metre, compared with 15,000 yuan in February. Some have demanded compensation for the difference between the reduced rates and the amount they paid. Some have asked the developer to buy their flats back, accusing the company of deliberately concealing its plans to cut prices.
    Related topics
    • Numerous other property companies around China are similarly beleaguered. The Chinese press says that in September around 100 homeowners in the eastern city of Hangzhou stormed into the offices of Vanke, a big developer, to demand compensation for falling prices. In March a company in the southern city of Shenzhen (pictured above) caused a stir after it cut prices by 20%, by coughing up the difference to about 25 previous buyers of its property. Others have resisted giving cash, but have tried to calm homeowners by offering discounts on management services.
    The official press has shown little sympathy for the homeowners’ demands. Taming the housing market has long been a central-government objective. Even so, many local governments are now deeply worried about the downturn. By the second quarter of this year, prices were falling in more than a dozen big and medium-sized cities. Property-related activity makes up a considerable chunk of local governments’ revenue and, as Yi Xianrong of the Chinese Academy of Social Sciences points out, helps to line officials’ pockets.
    In recent weeks 18 cities, including Hangzhou and Shanghai, have introduced measures to prop up the market. These include cuts in transaction taxes and even subsidies for homebuyers. Hangzhou has made it easier for rural dwellers who buy homes in the city to obtain urban-residence certificates. These confer access to subsidised education and better health care than in the countryside. Shenzhen, where house-price falls have been among the country’s biggest (see chart), has so far resisted the temptation to intervene. So has Beijing, where the number of residential properties sold during the weeklong national-day holiday earlier this month—usually a brisk period for sales—was down by 72% compared with the holiday in 2007.
    [​IMG]
    For all the grumbling of homeowners wrong-footed by the market’s plunge, the central government is still mindful that a large proportion of middle- and lower-income households have been complaining bitterly about the fast rise in house prices in recent years. This group has a bit of clout too. Since they came to power six years ago, the present bunch of China’s top leaders have been trying to present themselves as more “pro-poor” than those in charge when the country launched its sweeping privatisation of urban housing in 1998 (a move that marked the birth of China’s middle class).
    Signals of where the central government wants the market to go remain mixed. On October 17th Wen Jiabao, the prime minister, presided over a meeting of the State Council, China’s cabinet, which called for a reduction in property sales taxes. On October 22nd the government announced that the minimum down-payment on first homes would be reduced to 20% from 30%, stamp tax would be eliminated and mortgage rates cut. But there has been no promise yet to scrap more stringent requirements, introduced in September last year, for borrowing for a second home. These measures acted as a strong brake on the housing market.
    The State Council called for the construction of government-subsidised housing to be stepped up. This could help stimulate economic growth, about which the government is showing signs of concern. On October 20th the National Bureau of Statistics said that GDP grew in the third quarter by 9%. This was lower than many had expected and the first time in four years a quarterly growth figure was in single digits. One Chinese newspaper said the government was considering the launch of a trillion-yuan fund to help build affordable homes. A bigger supply of cheap housing is hardly likely to boost prices.
    Growing demand for homes in the cities, on the other hand, certainly will help. The government wants to move many tens of millions of rural residents into urban areas in the coming decade. Andy Rothman of CLSA, an investment-banking firm, argues in a research note that with household debt “almost non-existent” and state-owned banks ready to lend, buyers will return to the market as the dampening measures are eased. And to keep artificially depressing the housing market, he notes, would anger the middle-class homeowners the party has been cultivating: not a risk China’s leaders are likely to take.

    from the print edition | Asia


    Notice this was writen in 2008?
    What does that tell you?
    Corrections has happend before.
    What goes up goes down again.

    Wait a few years and you will see the same article showing up again and the same readers will rejoice on the imminent collapse of China.

    Guess those kind writers do have their loyal readers
    .
    :rofl:
     
  12. Daredevil

    Daredevil On Vacation! Administrator

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    I wonder what are NPA's accumulated by the Chinese banks as a result of this huge price correction in Housing. It must be staggering figure.
     
  13. DMF

    DMF Regular Member

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    TODAY a very important meeting of the Politburo chaired by the president Hu, give the tune to the China ecomomy in 2012, on the realestate,our top leader still waiting the price to go down to the reasonable level, our top leaders say clearly they need the country men get rich by “honest hard work”, not speculating with housing.
    About the realeastate business, the real big boss is the government itself, the land belong to government, the bank belong to government, the government already get very rich, many of them are billionaire many time and have their wife and childen immigrated to other countries, if the officals in China squander less than they used to do, the realesatate cool down will not affect too much to the country’s economy.
     
  14. cir

    cir Senior Member Senior Member

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    Our Indian friends seem to be enamoured of collecting the so-called negative news,fact or imagination or worse,wishful thinking, about China。:rofl:
     
  15. tony4562

    tony4562 Tihar Jail Banned

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  16. Armand2REP

    Armand2REP CHINI EXPERT Veteran Member

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    The NPLs are HUGE! LGIVs have accumulated $2.4 trillion in debt and with the collapse of housing prices, most of it will go bad. Just look at something as inane as the Railway Ministry, $400 billion in debt. SOEs are on the margin with over 30% losing money to date, and that number is going to blow up since they have invested heavily in property to make up for lagging product demand. Go even more inane into Solar Power, $35 billion in debt with only $5 billion for market cap. Chinese bank books are built on Ponzi Quicksand.
     
  17. no smoking

    no smoking Senior Member Senior Member

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    Generally, Chinese banks only would approve your loan application after you deposited 30%-40% of the total amount. That means Chinese banks can take at least 30%-40% property value loss for both property developers and normal buyers. As the they are all state-owned, they may not dare to take over normal people's home but they definitely won't be soft when dealing with those developers. They can always count on gov when neccessary. Several property developers or economy, answer is quite obvious for CCP.
     
  18. cir

    cir Senior Member Senior Member

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    China to maintain firm stance on property market in 2012

    English.news.cn 2011-12-14 11:54:01

    BEIJING, Dec. 14 (Xinhua) -- China will unswervingly maintain its regulation policies on the property market next year for a return of housing prices to a reasonable level, according decisions made at the country's central economic work conference.

    A statement, released Wednesday after the annual conference, said the country will speed up the construction of ordinary commercial residential housing to increase the effective supply and promote the healthy development of the property market.

    The statement also said that China will push forward the trials of property tax reform.

    China introduced the property-tax trials in Shanghai and Chongqing at the beginning of the year as part of its efforts to curb skyrocketing home prices and contain asset bubbles.

    Since April 2010, China has imposed a raft of measures aiming to calm property prices. They include higher down payments, limits on the number of houses that people can own, the introduction of a property tax in some cities, and the construction of low-income housing.

    The statement said China should appropriately handle the investment and financing, construction, operation and management of affordable housing projects, and progressively solve housing problems for low-income urban residents, newly-employed workers and migrant workers from rural areas.

    The government has vowed to build 36 million units over the next five years in an effort to give more mid- and low-income households access to housing and stabilize runaway property prices, with 10 million units planned for both 2011 and 2012.

    China's housing authorities said on Nov. 10 that the country has already met this year's goal of starting the construction of 10 million units.

    Vice Premier Li Keqiang said in late November that the government should stick to its tightening measures over the property market and consolidate the regulative results it had achieved.

    "The construction of affordable homes will help curb excessive price rises and fuel urbanization, which will in turn unleash consumption and investment potential and push the development of related industries," Li said.

    More cities posted monthly home-price declines in October following the government's campaign to calm the property market.

    In October, 34 cities in a statistical pool of 70 major cities saw declines in new home prices from September, compared with 17 in September, data with the National Bureau of Statistics showed.
     
  19. Iamanidiot

    Iamanidiot Elite Member Elite Member

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  20. Iamanidiot

    Iamanidiot Elite Member Elite Member

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    Brigadier read this

    China Data, Part 1: Real Estate Downturn « Patrick Chovanec
     

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