A Very Dangerous Thought
Some housing bubble news from the Asian region. From ANN, “Financial policies in China are driving an interest in the Australian real estate market. Andrew Taylor, CEO of a Chinese language website listing international property from offices in Hong Kong and Shanghai, says the interest is growing. ‘Our user data shows that Chinese real estate buyer interest in Australia is up about 370 per cent on this time last year which is a huge increase.’”
“In the Sydney harbour suburb of Mosman, 30 to 40 per cent of sales over $3 million have reportedly been to Chinese buyers. John Lee, Adjunct Associate Professor at Sydney University, says this section of the market attracts the extremely rich who will pay above market rates. ‘There are capital controls in China, it’s very hard to take money out of the country. Buying real estate is one scheme that quite a lot of the ultra-rich in China have come up to get money out of the country into safe assets like Australian residential property. So it’s not so much that they want to own something in Australia it’s more that they want to get money out of the country,’ Lee said.”
“‘Much of it is illegal. So for example you might want to set up a false trading company overseas, you declare the money being sent overseas is for the purpose of trade when it’s actually for investment. And it’s been estimated that in the last 10 years almost $US4 trillion has left China through this kind of method,’ he said.”
The Malaysian Star. “The property market in Johor, particularly Iskandar Malaysia, might be a case of too much too soon. Red flags are showing in the state where launches of projects and high prices are common place but the pace of launches, which now includes ‘carpet building’ by China developers, is flooding the market with more houses than what could be sustainable. Latest data indicate the amount of new homes being built in the near future is equivalent to 42% of the stock of 702,101 houses in the state. Almost 300,000 near homes are being built or in the planning stage at a time when the market in Johor has hit a soft patch.”
“‘We welcome foreign developers including those from China, but flooding the market with massive supply of properties could create property overhang,’ says Johor Real Estate and Housing Developers Association chairman Koh Moo Hing.”
The South China Morning Post on Hong Kong. “If you could ask a crystal ball any question, what would it be? Landlords of Hong Kong luxury residential properties would probably want to know when they can find tenants to fill their vacant homes. Apartments in the prime districts of The Peak and Southside have been the most affected, with average rents dropping 10 per cent and 7.1 per cent, respectively, last year, according to property consultant Savills. The gloomy picture is likely to persist this year alongside a weakening office market as hiring dries up.”
“‘The situation is worse than expected. Last year, vendors of strata-titled luxury flats refused to lower selling prices, as they firmly believed that they could put the units out for lease in the worst case. As time went on, they realised the difficulty of finding tenants,’ the property consultant said. This year, some vendors are believed to be softening their stance on prices, and they may prefer to offer units for sale by cutting prices rather than hold them vacant without any rental income.”
The Hong Kong Standard. “Excessive production capacity is a ‘cancer’ for the mainland economy and the property sector would be the first to collapse, the deputy head of a top state-linked think tank has warned. ‘We depend on investment to improve economic growth. But the influx of investment will bring excessive production capacity,’ Chinese Academy of Social Sciences vice president Li Yang said. ‘All in all, the problem lies in defects in the system.’”
“Li expects a clearer picture on the oversupply of homes to emerge after a nationwide registration system is launched in June. ‘People avoid talking about the property sector but everybody knows there’s a big problem. And the problem is very serious, all the financial departments are preparing [for a decline in the property market],’ said Li, who believes the sector will be the first to suffer this year.”
China Economic Review. “Last year was a wild ride for the mainland real estate market. Prices coming off of a low base topped 20% year-on-year growth in some of the biggest cities. Transaction volumes rose to record levels. Yet amid the dizzying highs in cities such as Shanghai and Guangzhou, month-on-month price growth in many smaller cities across China began to slow starting in the second quarter. By December, prices were falling month-on-month in two cities and had leveled out in three.”
“Prices in Wenzhou, a major manufacturing hub in coastal Zhejiang province, have fallen for 29 consecutive months. The speculative investors in Shaoguan, a southern city, are no doubt looking at the Wenzhou case with trepidation. In December, that city became the second to join Wenzhou in the month-on-month decline. Three prefecture-level cities, Zhanjiang, Bengbu and Yueyang, are teetering on the edge.”
“Big cities will stabilize, ‘but to most inland cities, the second- or third-tier cities, I don’t think it’s a good year,’ Shao Yu, chief economist at Orient Securities, said last week during a talk with journalists in Shanghai. ‘Because [developers] already provide a huge supply, so the price I don’t think has any chance to go up. They can simply go down.’”
Want China Times. “A real estate agent in Wenzhou told CCTV that the number of housing transactions has dropped 50% to 60% to only five to six deals being closed every month, and the impact this year has been harsher than the sector expected. Signs pointing to fire sales, have been seen at every property agency in the city.”
“One realtor said that during the ‘good old days’ between 2009 and 2011, houses were flipped from one agency to another, and their prices would double in a month in the process. Chen Hong, a senior researcher at Wenzhou University’s real estate institute, told CCTV that heated market speculation has led to low occupancy rates in residential projects. Another agent said that a house, which could be sold for 40,000-50,000 yuan (US$6,595-$8,244) per square meter before, is now worth only 22,000-23,000 yuan (US$3,628-$3,793) per square meter.”
The Epoch Times. “For years, Ren Zhiqiang, one of the largest property developers in China, said he has been attempting to draw attention to the risks in China’s real estate market. He alerted investors to slowing house prices in a real estate award ceremony on Jan. 21 of this year. ‘I’ve raised the topic of ‘risk’ in real estate reports for the first time in over 10 years,’ Ren said. ‘It’s a very dangerous thought that developers still believe house prices will increase like in 2013. That’s my biggest worry.’”
“Housing price growth has been worse in third and fourth tier cities so far this year, with a declining trade volume for the last three months. The slowdown in the real estate market is having a more pronounced impact on the smaller cities than many predicted. ‘Real creative and big companies in China are located in top tier cities, and almost none of them are in China’s third and fourth tier cities. This leads to brain drain and population outflow in those places,’ said Jason Ma, economics commentator at a major real estate consultancy. ‘So small cities can only rely on natural resources such as mining or government projects. But local governments have less and less ability now because of huge local debts.’”
“This exacerbates what observers have called ‘ghost cities’: under-occupied cities, where vast sums of money has been spent on real estate projects that then generate insufficient income to service the enormous debts. ‘It might be too early to reach a conclusion on China’s real estate market collapse,’ Jason Ma said. ‘But if the trade volume keeps trending low like this throughout February, it may be a signal that housing prices are in a dangerous place.’”
I was talking to a China observer this weekend (I don’t have the time to follow China going-ons). I mentioned how I know of several Chinese buyers in San Fran buying these $20-30M homes. He told me how the “elite” in China are getting the hell out. They fear the people as well as govt agents coming after them for “corruption” (however they define it).
I read a couple of articles about the quality of life (smog/pollution) spurring the exodus, but he said that isn’t really the case. Elites feel they are at zero hour as far as a revolt. The Chinese are literally using the term “Time to get out of Dodge”
Thank for the inside info!
So, are the Chinese trying to get the money out of the country, themselves out of the country, their families out of the country, a mix of all three? Do they want to get at much money out of the country in as few transactions as possible? That would explain why they have no problem buyng over priced houses in California, in a hurry. Or are they interested in safe houses? It surprises me that they are stopping at drought-ridden CA and not buying up entire small towns in the Midwest. And how much of a financial bath are they willing to take? If they buy a $650K house and lose $150K, do they care?
It surprises me that they are stopping at drought-ridden CA and not buying up entire small towns in the Midwest.
It doesn’t surprise me. A lot of them don’t speak English very well, if they speak it at all. They’re more likely to find other Chinese speakers in CA than in small Midwestern towns.
Birds of a feather flock together.
Spot on slim…
Per my contact, they are getting themselves/family and their money out asap. I am referring to $10’s of millions (at least that’s what our conversation focused on) But I suppose it could run the spectrum.
I think the bigger point was that there has been a “real” decision by the elites to “get out”. Their history is just too riddled with revolts and heads on sticks.
For now, I presume all of this is being done thru legit channels/banks etc.
I am going to watch news stories for any sort of large cash/gold discoveries found on traveler’s bodies (arriving into SFO/LAX for example). I think that would really spell out the end game.
Heh. Once again, the U.S. has established a comparative advantage when it comes to a country’s relative attractiveness to financial criminals. We clearly need to re-dedicate the Statue of Liberty. Give me your tired, your poor … your corrupt.
“Their history is just too riddled with revolts and heads on sticks.”
+1 A cursory search of recent Chinese executions includes activists seeking industrial environmental awareness and political transparency.
Donkey…. If you borrow $150k and lose it, you’re not going to care?
I would care. But if I were a Chinese person with $10 million dollars and $150K will assure that my head is not found on a stick, no, I wouldn’t care.
They’re cherry picked exceptions.
My husband has a former co-worker who is from China. He has family in China and travels there occasionally. He said not all the “cash buyers” are truly cash buyers. They borrow from other sources.
When they buy in Shanghai the whole extended family pitches in.
And that’s an under-reported aspect of the bubble. Generations of wealth are being transferred. What’s happening in China is truly malignant.
Now that you mention it, that is the sort of thing people might kill each other over when they figure out they’ve been had.
If they truly think the SWHTF in China — enough to take active steps to “get out of Dodge” — then heck, I don’t blame them for borrowing. When there are zombies banging down the door, no one is going to come find in them in the US just to collect a measly $400K loan.
ISTR reading that the Chinese government just recently (within the past year or two) allowed their citizens to move money out, which is feeding this trend. Anyone else heard the same?
After reading the above, I have just one thing to say:
Sum ting wong.
“…..Another agent said that a house, which could be sold for 40,000-50,000 yuan (US$6,595-$8,244) per square meter before, is now worth only 22,000-23,000 yuan (US$3,628-$3,793) per square meter”
$8,244/Square Meter = $770/Square Foot
Even $3,793/Square Meter = $339/Square Foot.
I think HA will agree with you! Sum Ting Tu Hi!
LOL….Pretty funny Palmy…
“Much of it is illegal. So for example you might want to set up a false trading company overseas…”
It is one thing to get the money out. When trouble starts it may be difficult to get one’s self out to where the money is.
UK in the 70’s you could only take 50 pounds w u.
how bout dat,yo
‘Sales of private homes by developers in Singapore fell 72.1 per cent in January compared to a year earlier, government data showed on Monday.’
‘SINGAPORE - Over the past year, she viewed more than 100 flats in Punggol before she found the perfect home. The spacious five-room flat was a steal because it was offered at $495,000, below valuation by a whopping $60,000.’
‘On top of that, it is surrounded by sprawling greenery and is just minutes away from the Kallang-Paya Lebar Expressway.’
‘Property agent Ray Sim, who helped to sell the flat to Ms Lee, admitted that he was shocked at the price of the flat. Mr Sim said: “This transaction is unusual and definitely does not reflect the current market. Usually people sell their flats $20,000 or $30,000 below valuation at most.”
‘He explained that the price dipped so drastically because the flat had been on the market for seven months.’
‘The number of homes sold this year may be the smallest for 14 years because the supply of housing is limited and the market uncertain, Ricacorp (Macau) Properties Ltd thinks.
Official figures show the number of homes sold last year was 12,046, or 28.8 percent fewer than in 2012 and the fewest since 2009, when just over 11,300 were sold.’
‘Ricacorp Macau managing director Jane Liu Zee Ka says sales of second-hand homes also declined last year as owners demanded “aggressive” prices, keeping would-be buyers at bay.’
‘Ms Liu says uncertainty about economies elsewhere, notably uncertainty about the schedule for weaning the United States off its ultra-easy monetary policy, will affect the behaviour of homebuyers in Macau.’
‘The average price of housing last year was 82,776 patacas (US$10,348) a square metre, 37.8 percent more than in 2012, official data show. But Ms Liu says the rapid growth in gross domestic product and the development of Cotai will support prices of housing.’
“There is not much room for correction in housing prices, but they will not rise by as much as in previous years,” she says.’
‘Ms Liu says uncertainty about economies elsewhere, notably uncertainty about the schedule for weaning the United States off its ultra-easy monetary policy, will affect the behaviour of homebuyers in Macau.’
Just because ultra-easy monetary policy encouraged real estate speculators to run wild on seven continents doesn’t necessarily mean that weaning the U.S. off the policy will necessarily reverse the situation.
“Last year, vendors of strata-titled luxury flats refused to lower selling prices, as they firmly believed that they could put the units out for lease in the worst case.”
Wi tu lo.
LOL…Your killing me Palmy…
‘Data released last week by the official China Trustee Association underlined how the surging property sector has been driven in large part by financing from trusts. Remarkably, trusts provided more financing for the property sector than bank loans, according to official figures reported by the Wall Street Journal. Between October and December, trust funding of 140 billion yuan ($24.56 billion) found its way to the property sector, marking a 10-fold increase in just one year, up from 11 billion yuan ($1.81 billion). Loans from banks reached 80 billion yuan ($13.19 billion).’
‘On Friday [last], another trust linked to a coal investment emerged to be in trouble, as a $50 million investment product offered to clients of the China Construction Bank, the country’s second biggest bank, failed to repay investors on time. The product was tied to a loan offered to another Shanxi coal company. The trust said it was unsure when clients would be paid.’
‘Two of China’s biggest steel trading companies are also bracing themselves for lawsuits in the coming weeks over debt problems. Xiao Jiashou, known as China’s steel trading “king”, is facing 22 lawsuits from a number of banks, while Zhou Huarui, head of the Shanghai Steel Services Trade group, is facing 18 lawsuits over unpaid loans.’
‘China’s CITIC bank had outstanding loans to steel companies amounting to 40 billion yuan ($6.6 billion) as of last year, with NPLs estimated at 8 per cent, while other major banks are also exposed by failing investments in the sector. The fate of hundreds of smaller steel companies is also tied to the two cases.’
“Big steel traders guaranteed the loans of smaller steel trading firms, and sometimes traders used property as collateral to several banks at the same time,” Zhang Lin, an analyst at the Beijing Lange Steel Information Research Centre, told the Global Times. “If one of them meets problems, it is very likely to have a domino effect,” he said, leaving an uncertain few months ahead for the world’s second-largest economy.’
“Big steel traders guaranteed the loans of smaller steel trading firms, and sometimes traders used property as collateral to several banks at the same time,”
Bwahahahahahah! Using a technique that banks themselves have used since the days of the goldsmiths.
Ironic isn’t it. World’s second largest Ponzi scheme is more like it.
“Buying real estate is one scheme that quite a lot of the ultra-rich in China have come up to get money out of the country into safe assets like Australian residential property.”
Wasn’t it but a few short years ago that the ultra-rich in another communist state* were getting money out of the country into safe assets like Idaho residential property?
* California
LOL, good one. Flight from the oppressive CA democratic party government?
CA Republicans are worse. At least with the Democrats, you get what you pay for.
“One realtor said that during the ‘good old days’ between 2009 and 2011, houses were flipped from one agency to another, and their prices would double in a month in the process. Chen Hong, a senior researcher at Wenzhou University’s real estate institute, told CCTV that heated market speculation has led to low occupancy rates in residential projects. Another agent said that a house, which could be sold for 40,000-50,000 yuan (US$6,595-$8,244) per square meter before, is now worth only 22,000-23,000 yuan (US$3,628-$3,793) per square meter.”
Those price dynamics bring to mind the recent behavior of the bitcoin market.
‘It’s a very dangerous thought that developers still believe house prices will increase like in 2013. That’s my biggest worry.’
Isn’t this a corollary of the real estate investor’s basic tenet of faith?
REAL ESTATE ALWAYS GOES UP.
When this hits, as it surely will, it’s going to be a very painful experience for anyone holding debt or real property.
“‘We welcome foreign developers including those from China, but flooding the market with massive supply of properties could create property overhang,’ says Johor Real Estate and Housing Developers Association chairman Koh Moo Hing.”
The core problem with communism is that it ignored how humans actually are - they are self-interested beings, not ants willing to work selflessly for the hive (under the direction of a Dear Leader).
The core problem with Keynesian stimulus is that government cannot mimic the actions of millions of individual economic actors in order to create a beneficial effect on the economy.
What does government or central bank stimulus do? Create stuff no one wants or can afford. Krugman says “Unproductive economic activity is better than no economic activity.” In the short run. But isn’t it possible that unproductive economic activity leads to longer term squelching of productive economic activity due to malinvestment, misallocation of resources and debt overhangs?
Here’s an Australian article, but it’s behind a pay wall:
‘Chinese money is driving a housing glut’
http://www.businessspectator.com.au/article/2014/2/18/property/chinese-money-driving-housing-glut
I guess if you have more money than you know how to spend, then why not pour it down a real estate investing rathole?
get on this today !
http://finance.yahoo.com/news/12-reasons-buy-real-estate-overseas-174658316.html
They didn’t become extremely rich by being willing to pay above market rates. These Chinese criminals don’t care if they lose half their money because they know that they will probably lose all of their money (and their lives) if they stay in China. Chinese money launderers can’t keep the market overpriced forever, just by buying and selling to one another. They know that the prices will fall, but they don’t care. People should not expect prices to stay aligned with what these individuals are paying.
Start a business. Borrow from the government. Buy some copper. Borrow even more against that. Then borrow more against it. Send the money to Australia or Vancouver. Sell the collateral. Go on holiday.
Not necessary to actually be rich to start.
Bend, OR Housing Prices Crumble 11% Y-o-Y; Housing Inventory Up 32%
http://www.movoto.com/bend-or/market-trends/
Time to Bend over : )
House Haters int
I love when they visit a country w no extradition or western legal system and pay 300+ a sq ft !
kewl
It’s called an “Entry Fee”.
Don’t look now, but the China macroeconomic indicators are pointing down.
This will get ugly once denial gives way to fear.
MARKET PULSE Archives
Feb. 19, 2014, 8:59 p.m. EST
China manufacturing activity at 7-month low: HSBC
By Michael Kitchen
LOS ANGELES (MarketWatch) — Chinese manufacturing is contracting as activity hits its weakest pace in seven months, according to HSBC’s preliminary reading on the sector for February, released Thursday. The HSBC/Markit “flash” version of its monthly Purchasing Managers’ Index dropped to 48.3 compared to a final reading of 49.5 in January. A reading below 50 suggests contraction, while one above 50 shows expansion. The subindex for manufacturing output also hit a seven-month low, while the employment gauge showed a faster decrease than in the previous month. The new-orders component swung to a decrease as well, with new export orders also showing a decline, though at a slower pace than in January.
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