May 5, 2014

Once The Bubble Is Broken, The Finances Will Be Done

A report from the China Economic Net. “Home prices in first-tier cities are finally showing signs of dropping, with some apartments currently being sold at price discounts. An apartment of around 90 square meters, worth around 3 million yuan ($479,400), could be sold at a discount of 100,000 yuan to 200,000 yuan in Beijing, according to Gao Yuan, a Beijing-based realtor. ‘An apartment used to have more than five potential buyers, but now there are only one or two,’ a Beijing-based realtor, who declined to be named, told the Global Times.”

“The property market in Shanghai is also cooling. Units in a new real estate project in Pudong district were being sold at a price discount of as much as 28 percent recently, media reports said. Nearly half of the 100 cities monitored by the China Index Academy have reported negative month-on-month growth in April. Industry insiders said high-end properties have been hit harder. ‘It is hard to find buyers for high-end properties, even with price reductions,’ Huang Wenquan, a Shanghai-based realtor at Century 21, told the Global Times.”

“It is also the case in Beijing. An apartment at a prime location in the city, worth around 7.5 million yuan, has had its price cut by as much as 1 million yuan, Beijing-based newspaper China Business Journal reported Saturday. ‘In Beijing, the increasing supply of welfare housing is a major reason behind the current price drop,’ Chen Guoqiang, deputy head of the China Real Estate Society, told the Global Times.”

The Standard. “Home transactions in Beijing during the current Golden Week plunged to a six-year low of 200 deals - a stark sign of the bearish sentiment reigning in the mainland property market. Amid more supply in the subsidized mass-housing market and the tight credit environment, only 169 new homes were sold between May 1 and 3, Xinhua News Agency reported. On the other hand, 31 secondary market flats were bought over the three-day break. Both figures are the lowest since 2009. They represent about a 80 percent plunge in transactions from 2013.”

“A 137-square-meter apartment at Hesheng Guoji in Chaoyang District failed to secure a buyer even after the asking price was slashed by one million yuan (HK$1.23 million) to six million yuan, or 43,796 yuan per square meter. The average price of units in the district is more than HK$50,000 psm. Agents also revealed that secondary homeowners generally lower prices by at least 100,000 yuan just before negotiations start.”

“The slow pace of deals kept most real estate agencies in the capital inactive during the three-day holiday. Only one out of the 15 agencies in the capital saw transactions during the golden week holiday, Xinhua reported. Meanwhile, a new project in Shanghai even launched a swim-suit fashion show in a bid to boost sales.”

The Telegraph. “A leaked recording of dinner speech by Vanke Group’s vice-chairman Mao Daqing more or less confirms what the bears have been saying for months. Li Junheng from JL Warren Capital has translated his comments, which I pass on for readers. ‘In 1990, Tokyo’s total land value accounts for 63.3pc of US GDP, while Hong Kong reached 66.3pc in 1997. Now, the total land value in Beijing is 61.6pc of US GDP, a dangerous level,’ said Mr Mao.”

“Mr Mao said 42 new projects for elite homes in Beijing will be finished in 2015, hitting the market with an extra 50,000 units that ‘can’t possibly be digested.’”

From IFR Asia. “A combination of bearish reports from analysts and weaker-than-expected home sales is raising concerns among overseas investors of a credit crunch in the Chinese property sector. An asset manager in Singapore says asset turnover has decelerated and so have gross margins for the sector, a twin drop that give cause for concern. ‘There are concerns about China property as bond issuers have bought a lot of land. So, they are building up inventory,’ said a hedge fund manager. ‘If you are cutting prices and don’t sell, that is bad.’”

From ECNS. “Major domestic banks have experienced significant increases in nonperforming loans, their first-quarter results show. China Construction Bank Corp had 90.81 billion yuan ($14.52 billion) in NPLs as of March 31, up 5.54 billion yuan from the end of 2013. Bank of China Ltd had an NPL balance of 80.32 billion yuan, up 7.05 billion yuan. Agricultural Bank of China Ltd’s bad loan balance increased 4.21 billion yuan to 91.99 billion yuan.”

“Slower credit expansion contributed to the increase of NPLs, said Ni Jun, an analyst at Shanghai-based Greenwoods Asset Management Ltd. ‘The banking regulators have tightened their grip on shadow banking. As the banks have grown cautious in lending, it’s gotten tougher for many companies to get loans,’ Ni said. He noted that the regulatory policies on shadow banking will benefit Chinese companies in the long run, especially those in certain sectors including iron and steel, nonferrous metals, coal and shipbuilding. ‘Raising funds from the shadow banking system is like taking drugs. Our companies will get better if they can endure the pain of stopping,’ he said.”

From NTD TV. “In an interview with China Business News, Hou Yunchun, Vice President of the State Council Development Research Center said that China has been through so many years of development, so a housing bubble certainly exists. But Hou says it’s a bubble that cannot be allowed to burst, otherwise, it would really shake the economy.”

“Gong Shengli, China affairs expert: ‘Housing interests make up 60% of the local governmental revenue in cities like Nanjing, Hangzhou, Wuhan and Guangzhou. Government in the U.S. or European countries has no more than four levels of administration, but China has seven levels. Besides the seven levels, the interests are again split between the party and the government. So the cost of keeping government in China is the highest in the world.’”

“At end of 2013, Du Meng, Chairman of China Enterprise Capital Alliance revealed that there were 68 million empty houses in China. Moreover, the capital chain of real estate in many cities have been broken. Recently media have reported that 30% of the projects in the Tianjin Binhai Business District, known as ‘China Manhattan,’ have failed to materialize, other construction projects have been shutdown.”

“Wu Fan, US-based chief editor of China Affairs magazine, says there are hundreds of ghost towns in China, yet the CCP still builds new houses: ‘Once the bubble is broken, the finances will be done. The entire market will collapse, the CCP will reach it’s end. Thus they are in very conflicted situation. Nevertheless, this conflict was caused by none other than the CCP.’”

Want China Times. “In Ordos, one of the 12 subdivisions of Inner Mongolia, people in the ghost city are bartering to settle their debts. Ordos real estate entrepreneur He Jun has gathered many debts since the private loan sector in the city collapsed two years ago. He is just one of the army of debtors in Ordos, once the richest city in China in terms of per capita GDP on the back of its coal reserves but now called the ‘city of debt,’ according to the China Securities Journal.”

“Since most of the debtors are also creditors, they started paying debts with objects such as wine and houses that their own debtors had provided to settle their debts, the journal said. He Jun turned to precious metals because of the ban. ‘After the real estate bubble burst, many houses remain uninhabited in Ordos. As a result, no one is willing to exchange houses for gold. Houses can only be exchanged for silver,’ He added.”

“For example, He use silver objects worth 500,000 yuan (US$80,000) to pay off at least 1 million yuan (US$160,000) in debt. According to He’s estimate, the value of private debts in Ordos stands at over 200 billion yuan (US$32 billion). ‘They can only be settled gradually over time,’ he added.”

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Comment by Housing Analyst
2014-05-05 04:40:15

May 04, 2014-”China Manufacturing Shrinks For 4th Month”

Hold on tight cowboys because you’re in for the ride of your life.

Got cash?

Comment by Housing Analyst
Comment by Housing Analyst
Comment by Housing Analyst
2014-05-05 05:17:35

Lucas, TX (Dallas) Housing Prices Plunge 11% YoY; Inventory Balloons 83%

Comment by Housing Analyst
2014-05-05 05:24:13

Weston, TX(dallas area) Housing Prices Plunge 37% YoY

Comment by Salinasron
2014-05-05 06:10:04

I could care less about the China housing market. The only thing I’m interested in is the effects financial changes in China will have on the world currency markets.

Comment by Ben Jones
2014-05-05 06:25:37

You know, you don’t have to waste my bandwidth with your rude BS.

Comment by Ben Jones
2014-05-05 06:27:49

‘From the East, emerging markets are importing the concept of a “developmental state”. This entails a government that knows better than the market and allocates resources in order to create jobs. And, typically, governments misallocate resources. They inhibit competition through the creation of state-owned monopolies. They destroy capital through investing in outdated and surplus technology — printing presses, steel-making capability, coal-fired power stations. And they reduce the growth of industry — and therefore employment — through red tape. What they fail to understand is that China’s success has not been built on “smart government”, but on excess credit creation.’

‘Normally, interest rates would rise, reflecting the poor conditions for capital. Instead, the release valve from the twin evils of financial repression and “smart government” is the currency. It is no surprise that most emerging market currencies have depreciated significantly. And if more countries follow India’s lead in imposing capital controls, currencies could take a further hit.’;jsessionid=3ABC0E6EE5804162DD4878737BB2891F.present2.bdfm

Hey ron, when China’s bubble makes your job go away, you can always wash my cars for some spare change.

Comment by clark
2014-05-05 21:34:11

RE: “Hey ron, when China’s bubble makes your job go away,…”

That’s why I read this blog, that’s why I appreciate the blog owner and, probably, half the contributors.

Some people see the Big Picture, some people don’t.

I’d prefer not to get hit by the two ton heavy thing swinging this way, a second time.

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Comment by Whac-A-Bubble™
2014-05-05 06:26:02

“But Hou says it’s a bubble that cannot be allowed to burst, otherwise, it would really shake the economy.”

It sounds as though the Chinese housing bubble is deemed too-big-to-fail. So no worries about major financial changes, as they won’t be allowed to take place.

Comment by LolaLOL
2014-05-05 06:44:24

Just make up the numbers. It works for us over here too!

Comment by Housing Analyst
2014-05-05 08:22:07

That’s right. Any lies are acceptable to deny the deflationary spiral.

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Comment by In Colorado
2014-05-05 08:25:13

In the late 80’s I worked with a guy who had recently arrived from the USSR. He told us how everyone always laughed at the bogus, Orwellian numbers the government would announce on TV, as they were all blatantly false and optimistic.

Now it’s like that everywhere. We have “6%” unemployment. China has “7%” growth. Price increases everywhere are “low”.

Heck, even Mexico claims to have low unemployment.

I understand that the chocolate ration has been increased too. It’s all double plus good.

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Comment by Ben Jones
2014-05-05 06:49:33

‘According to China’s official media, on April 28 the Housing Authority and Real Estate Management Bureau of Nanning City of Guangxi Province released a document
to free up housing market purchase restrictions. Starting from April 25, residents of five surrounding cities of Guangxi Beibu Gulf Economic Zone may buy two suites in Nanning City, the same as residents of Nanning.’

‘The report indicated that this was the first official announcement on adjusting the housing market restrictions, a signal of an officially move to deregulate Housing Purchase Restriction (HPR) policy.’

‘USC Aiken School of Business Professor Xie Tian said that the Chinese Prime Minister’s hint does not mean that the CCP government has completely abandoned intervention, or completely abandoned the bailout, or allows the market to regulate itself.’

‘Professor Xie Tian: “The central government has recognized that the scale of the real-estate bubble is too much There is no way to save it, but it won’t do not to save it. Whether Nanning in Guangxi or Fenghua in Zhejiang, as long as they do not impact the overall system, and they are not the first-tier cities with strong political risk, it is feasible to let them go bankrupt or default.”

‘Xie Tian thinks it is more likely that local governments are using these measures to save themselves. Ren Zhongdao incidated that local governments face the issue of new inventories entering the market as well as default.’

‘Ren Zhongdao: “If both volume and price drop, money cannot be repaid. It is likely that real-estate enterprises’ capital chain will break and hit local economies and financial systems.”

‘So, will these measures push the falling house prices back up?

‘Xie Tian: “It does not have the power to push up the price. One reason is the real-estate bubble and the stock market bubble; another reason is the extra money issued by the CCP government, the third reason is hot money from overseas. All these sources are declining.”

‘Ren Zhongdao: “The house prices will continue to fall. Overseas finance is more difficult due to the Yuan’s devaluation. The cost is also growing,and banks are tightening up on (real-estate ) lending.”

‘Ren Zhongdao said that more than one hundred billion yuan of trust will come due in May. It will have a large impact to the real-estate capital chain. So the best way is to continue to cut prices.’

On this:

‘residents of five surrounding cities of Guangxi Beibu Gulf Economic Zone may buy two suites in Nanning City’

Yeah, I’m going to wander over to Nanning and buy a couple of air boxes that are falling 20% a month.

Comment by Whac-A-Bubble™
2014-05-05 07:14:01

“There is no way to save it, but it won’t do not to save it.”

There is a Chinese conundrum.

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Comment by Carl Morris
2014-05-05 09:24:18

Sounds just like the decision that was made here in 08.

Comment by Ben Jones
2014-05-05 09:33:32

The Chinese government printed $15 trillion since 2008. What can they do now that won’t make things worse?

Comment by Whac-A-Bubble™
2014-05-05 06:21:36

The housing news out of China has become too depressing to process any more.

Comment by AbsoluteBeginner
2014-05-05 06:54:25

Sell in May.

Comment by Ben Jones
2014-05-05 07:01:36

‘Jia Zhangke’s A Touch of Sin is a difficult film to watch, but it is one that needs to be seen all the same. Brutal and beautiful in equal measure, this is one of the best films to come out of China in recent memory. Why then is it banned in China?’

‘It is banned because it portrays a narrative that does not fit into the one Beijing seeks to show us. The China we see and hear about is one with gleaming skyscrapers and a booming economy—a nation ready to take on the role of superpower in the coming decades. A Touch of Sins shows us a very different People’s Republic, one where corrupt officials are hand in glove with sleazy businessmen who are in turn tolerated by spineless citizens. It makes for pretty bleak viewing.’

‘The film has four stories, each of which is apparently based on a fairly recent news account. Each vignette is set in a different region of China. What connects them is the economic and political corruption of the system. It is almost a forensic study of how the main characters respond. The answer is with violence.’

‘The director says that he does not endorse violence. In an interview with the New York Times, Jia noted, “I don’t want this film to inspire imitation or to convince people that violence is good. I trust that the power of this film lies in its ability to encourage people to think about violence, to reflect on it.” This is exactly the view of China that the Communist Party does not want the world to see. The subtle message that sometimes violence is understandable, if not justified, cannot sit easy with a government eager to stamp out any sign of dissent.’

Comment by Whac-A-Bubble™
2014-05-05 07:19:30

‘This is exactly the view of China that the Communist Party does not want the world to see. The subtle message that sometimes violence is understandable, if not justified, cannot sit easy with a government eager to stamp out any sign of dissent.’

Tiananmen Square: Chinese police try to silence 25th anniversary
Six weeks before the most sensitive date in China’s calendar, a campaign to make sure the 25th anniversary of the Tiananmen protests passes unmarked is in full swing
By Malcolm Moore, Beijing and Tom Phillips in Shanghai
9:42AM BST 29 Apr 2014
A lone demonstrator stands down a column of tanks in Tiananmen Square Photo: GETTY IMAGE

Chinese police are waging a clampdown on those who might try to mark the 25th anniversary of the Tiananmen massacre in June, focusing efforts to silence dissent on the families of the hundreds of protesters and civilians who were gunned down by the military.

Since June 4, 1989, when the People’s Liberation Army (PLA) opened fire in and around Beijing’s Tiananmen Square killing a still unknown number of students, the Communist Party has tried to airbrush the event from Chinese history. Schools do not teach it, domestic media are forbidden from discussing it, and activists who invoke its memory have been harassed and even jailed.

As the anniversary approaches, those efforts have been ramped up, with police monitoring and detaining anyone who might dare to publicly remember it.

Comment by fang nu
2014-05-05 11:16:27

Four dead in Ohio.
We erased that one ourselves.
Four or “hundreds” they are us…or want to be.

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Comment by Whac-A-Bubble™
2014-05-05 19:17:14

“We erased that one ourselves.”

Not really.

When I was growing up, my sisters owned the album with the Neil Young song Four Dead in Ohio on it. So it doesn’t look like Uncle Sam tried very hard to erase the memory of Kent State.

Comment by clark
2014-05-05 21:49:48

RE: “So it doesn’t look like Uncle Sam tried very hard to erase the memory of Kent State.”

Do high schools discuss this subject in class?
Do colleges?

Is it Ever on the evening news?

Seems to me it’s been erased.
Maybe in a different fashion than they do over in China, but the end result is the same.

Do you suppose there’s an equivenlent MP3 of ‘Four Dead in Ohio’ about the Tienanmen Square? Does it matter?

Comment by snake charmer
2014-05-05 07:40:21

I am going to watch this film.

“A Touch of Sin tells us that, in contemporary China, no good deed goes unexploited, meaning that good people are few and far between.”

That sounds like us too.

Comment by Ben Jones
2014-05-05 06:53:26

‘For hungry consumers, food deflation is a blessing: for hungry farmers, a curse.’

‘Many of China’s hundreds of millions of farmers are feeling the squeeze of lower prices for a variety of produce, ranging from vegetables through pork to cooking oil. In March, food prices dipped 1.6 percent month on month. Prices of pork, vegetables and aquatic products fell 7.1 percent, 5.4 percent and 1.9 percent, respectively.’

‘According to the Ministry of Commerce, farm produce prices in 36 major cities nationwide dropped further in the week ending April 27, the tenth straight week of decline.’

‘Pig farmers are hard hit as hog price slumped to their lowest levels in years: 2.1 percent week on week and 13.2 percent year on year to 10 yuan per kg in the week ending April 20, according to the Animal Husbandry and Veterinary Bureau of Shandong. Each hog could result into economic losses of 358 yuan ($57).’

‘Zhang Juting, owner of a pig farm in Huxian county in Xi’an, capital of northwest China’s Shaanxi province, said his costs are nearly 14 yuan per kg while the selling price is 10 yuan per kg. “Since the beginning of the year, our losses have amounted to more than 400,000 yuan,” he said.’

‘Jia Chongshan, president of Shuntai Agricultural Technology Co in Shouguang city of Shandong, a major vegetable production and trading center, said the vegetable market has been weak for a long time. “Even during the New Year holiday, prices of many vegetables even fell 10 percent year on year,” said Jia.’

‘Peanut oil fell 6.9 percent in mid April from a year earlier with peanuts taking about 7 yuan per kg. Farmers barely make any money from the crop.’

‘Tang Fan, vice president of Jiahe Agricultural Stockbreeding Co, said oversupply was one reason for the weak market and price declines, and the government campaign against banquets and gift-giving may also have reduced demand.’

Comment by Ben Jones
2014-05-05 06:58:49

‘China’s liquidity is ample, and simply easing monetary policy won’t help cash-starved private companies, a central bank official told a symposium on Tuesday.’

‘Wang Yi, deputy director of the statistics and analysis department at the People’s Bank of China, challenged the conventional wisdom that tight monetary policy in China is driving up financing costs for the private sector.’

‘Broad money supply, or M2, was up 12.1 percent year-over-year as of March 31, down from the expansion of 13.3 percent in February. This deceleration, along with the slower growth of total social financing - the broadest measure of credit - has been cited by many as proof that the PBOC is tightening credit.’

‘But Wang pointed to flaws in the official statistics, which he said underestimate actual money supply. He said “massive” amounts of money have been transferred out of non-deposit-taking financial institutions, and these funds weren’t counted in M2. In addition, fiscal deposits were excluded from the M2 calculation.’

‘If these two factors were added, the growth of M2 should be about 14 percent, instead of 12.1 percent.’

“Because of rapid innovation in financial products, many wealth management products, trusts and money market funds have moved beyond the scope of M2,” he said.’

‘Similar comments were made last week by Pan Gongsheng, a deputy governor at the central bank. Pan said that the financial sector has introduced so many innovative products in recent years that it has become much more difficult to calculate money supply.’

‘Ample credit was also reflected in figures for new loans, according to Wang. New yuan loans in the first quarter reached 3.01 trillion yuan ($483 billion), up 259 billion yuan year-on-year.’

‘But a lot of that credit remained within the financial system. Wang noted that China’s interbank borrowing has tripled from levels before the 2008 global financial crisis, and interbank assets now stand at nearly 16 percent of commercial banks’ total assets. That’s much higher than in Western markets.’

‘To circumvent regulatory limits, commercial banks have undertaken massive interbank lending activities in recent years. Meanwhile, depositors were lured by higher returns from new financial products, so banks’ deposit growth slowed and prompted them to be more conservative about lending.’

‘These factors have constrained credit to private corporate borrowers, driving companies into alternative channels and driving real borrowing costs sharply higher.’

“Interest rates for some private financing channels have reached 30 percent. What kind of investment could have a return rate of more than 30 percent?” asked Li Yang, vice-president of the Chinese Academy of Social Sciences, a central government think tank.’

“The United States has a 0.25 percent benchmark interest rate, but Federal Reserve officials are still complaining the lending rate is too high,” Li added.’

‘Wang said abundant problems in the real economy should be solved before the difficult access to credit can be addressed. Without substantial reform, any credit easing is meaningless.’

“If local government financing vehicles can still bear the high rates, and property developers can still borrow from trust companies at high rates, and State-owned enterprises still grab the majority of loans, private companies’ financing difficulties can’t be resolved,” Wang said.’

Comment by Ben Jones
2014-05-05 07:10:23

‘China’s great real-estate bust has begun, says Nomura. A combination of a huge oversupply of housing and a shortage of developer financing is producing a housing market downturn that could drive China’s GDP to less than 6% this year.’

“To us, it is no longer a question of ‘if’ but rather ‘how severe’ the property market correction will be,” three Nomura analysts wrote in a report released Monday. And there isn’t much the government can do to head off problems. “There is no policy that is universally right,” says Nomura analyst Zhiwei Zhang.’

‘The government has lousy policy choices, Nomura argues. Continue with minimal stimulus and GDP growth could fall below 6% this year. On the plus side, developers wouldn’t add much to China’s long-term housing and debt problems.’

‘Alternatively, ramp up monetary and fiscal policy by, say, cutting by 0.5% the reserves that banks hold in the central bank and by turbo-charging government spending, and the government could achieve 7.4% growth this year, Nomura estimates.’

‘But taking that route would only worsen China’s housing glut and delay the downturn by a year, the investment firm argues.’

‘Vanke, a leading real estate developer in China, recently brought to the market one of its residential developments in the south of Beijing at an average 21,000 yuan ($3,370) per square meter, far below the previously anticipated 26,000 yuan. As the weather vane of China’s housing prices, the price decline in Beijing is seen as signaling a possible price decline across the country.’

‘The collapse of the fund chain floated by a developer in Zhejiang province has further aggravated pessimism over the rosy housing market. The drastic fall of the yuan’s exchange rate against the dollar in February has also caused widespread concern over the negative impact caused by the possible exodus of international capital from the Chinese housing market.’

‘Many analysts had previously concluded that there will be at least another 10 years of golden time. Qiu Baoxing, vice-minister of housing and urban-rural development, said on the sidelines of the annual sessions of the top legislature and top advisory body that China’s housing sector is unlikely to encounter a big crisis in 10 years.’

‘A series of factors, including a loose monetary policy, strong housing demand and supply insufficiency, high-speed economic development, local governments’ excessive dependence of their fiscal revenues on land sales, as well as the influx of international capital betting on the yuan’s appreciation, have altogether bolstered the soaring of domestic home prices over the past decades.’

‘However, all these engines have started losing power since the start of this year. The confirmed phasing out of the quantitative easing policy by the US Federal Reserve will inevitably accelerate the outflow of international capital from China.’

‘The combined influence of these factors has increased the possibility of a decline in house prices this year. The fast price increases following a series of stimulus measures adopted after the 2008 global financial crisis have tightly bound China’s economy to the housing market.’

Comment by Whac-A-Bubble™
2014-05-05 07:22:05

This situation seems on track to become a classic example of the conventional wisdom on bubbles, which says that the longer and larger they inflate, the more severe is the economic fallout in the ensuing bust.

Comment by Albuquerquedan
2014-05-05 08:00:29

I know that a nuanced opinion often gets me in trouble here, examples:

1. An opinion that the 2012 election was not over in January in 2012 and Romney could win, gets portrayed as a prediction Romney is going to win.

2. A lukewarmist opinion that man is minor player in GW is portrayed as anti-environmentalism and a denial that man can have any role in climate. The AGW crowd has a you either are for us or you are against us mentality. It is either we are going to have CAGW without turning 100s of billions over to the U.N. or you think Rush is right and its all a fraud.

Despite this I will give a nuanced opinion of China. The housing bubble is real and in fact severe. The deflating of it will depress Chinese GDP for several years. However, the hard landing scenario in China is for 5% yoy GDP growth, both Brazil and the United States would kill for such a “failure”. Most experts on China think the housing bubble will depress growth to the 6.5% to 7% range. The popping of the U.S. housing bubble will lead to a recession and that is the difference between the two countries.

Comment by Whac-A-Bubble™
2014-05-05 19:21:28

However, the hard landing scenario in China is for 5% yoy GDP growth, both Brazil and the United States would kill for such a “failure”.

Maybe it will be different in China, but in the U.S., the fallout from the Housing Bubble implosion turned out ‘worse than expected,’ and ‘nobody could have seen it coming.’

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Comment by Albuquerquedan
2014-05-05 07:33:56

How to tell the difference in China between a tier one and tier two city:

Comment by snake charmer
2014-05-05 07:21:10

“For example, He used silver objects worth 500,000 yuan (US$80,000) to pay off at least 1 million yuan (US$160,000) in debt.”

Run that one by me again. This guy’s creditors are accepting the equivalent of 50 cents on the dollar as long as the debt is paid in a precious metal? And we’re not talking coins or bars, but “objects”? Doesn’t this suggest a lack of confidence in the currency, or official suppression of the market price of silver? But the guy is divesting himself of silver to keep the real estate that he owns, which is in an empty city that might never be filled. Could there be some loan-sharking or similar compulsion at work here?

Comment by GooglerInSF
2014-05-06 14:37:13

“Doesn’t this suggest a lack of confidence in the currency, or official suppression of the market price of silver?”


Comment by Ben Jones
2014-05-05 07:23:48

‘There was a surprising amount of bubble talk at the Milken Institute’s Global Conference in Los Angeles last week. Top investors and economists spoke publicly about their fear of inflated values for various securities and the broader economy-a decidedly less optimistic view compared to recent years.’

“I do see many signs of the bubble of the future-the default specter that you’re talking about. I agree that short term we’re not likely to see that, but all the danger signs are there of a future crisis,” Marc Rowan, co-founder of $161 billion private equity firm Apollo Global Management, said during a panel discussion.’

“Covenants have been stripped away, cov-lite is the norm, senior debt levels are actually higher than they were in 2007, although total debt is not quite where it was,” Rowan added, noting looser lending terms given to borrowers.’

“We’re back to doing exactly the same things that were done in the credit markets in the crisis.”

“It’s just indiscriminate buying. There are no covenants whatsoever. It’s covenant light and there’s just no creditor protections. PIK-toggle is back in a big way,” James Litinsky, founder of investment manager JHL Capital Group, said of leveraged loans and high yield bonds.’

“PIK-toggle” refers to a “payment in kind” bond that allows the issuers to defer paying interest on the note for a higher rate later on, essentially trading a cash payment for a new bond.’

“We’ve seen this movie before. We know how it ends,” Litinsky added. “We don’t know where we are-maybe there’s another year to go but as we know, when psychology changes, it changes fast.”

‘Joshua Harris, another co-founder of large private equity firm Apollo, also noted the effect of the Federal Reserve. “The quantitative easing and the excess money and the low interest rates have driven pricing up of almost all financial assets to beyond what their intrinsic value might be,” Harris said.’

“So even though we can all chat about the benevolent growth environment that exists in the U.S. and to a lesser extent globally, the ability to make money and invest wisely on that is very, very challenging right now because you’re starting at a point in the valuation cycle that is very, very aggressive.”

‘Harris added that it’s a “time to be cautious” and that Apollo is still looking for investments in sectors that are still relatively depressed. “Almost every asset is overvalued,” he said.’

Comment by In Colorado
2014-05-05 08:12:05

‘In Beijing, the increasing supply of welfare housing is a major reason behind the current price drop,’

Welfare housing? I wonder what that is? I’m guessing that the government has been building apartments in Beijing’s exurbs like there’s no tomorrow, as it keeps the masses employed. Then they rent them out for cheap to the working classes. At $500 a square foot to buy in the city’s center I could see a lot of professionals renting welfare housing.

Comment by Blue Skye
2014-05-05 14:33:46

I thought that was an illogical statement. Housing for the poor affects sales of housing for the wealthy? Maybe I just don’t understand how things work over there.

Comment by Ben Jones
2014-05-05 08:16:29

‘In terms of housing stock available for sale, there was a slight increase in the 12 months, with the inventory of sold homes reaching 23,610 at the end of March, a rise of 4.6% from a year earlier, the CBS said. Most of the increase was in the north, where the number jumped 40%. In the Jerusalem area, the supply increased 13% and in the Haifa area 4%.’

‘New-home sales plunged 7.2% for the first three months of the year from the same time in 2013, with observers warning that prices are making homes increasingly out of reach for middle-class families.’

“The decline in the number of homes being bought is just the clouds gathering before the storm,” said Erez Cohen, a property assessor. “The figures make clear that in April, and even more so in the coming months, the trend will strengthen.”

‘Cohen said the drop directly and indirectly reflects the increasingly high cost of buying a home and getting a mortgage, as the Bank of Israel toughens lending conditions. But other observers said it was not clear whether the government’s latest initiative to cool the housing market was responsible for the decline.’

‘Its two big initiatives – to eliminate value-added tax payments for first-time buyers buying new homes (up to a maximum of 1.6 million shekels ($462,000)), and the so-called “targeted price” for homes built on land sold to contractors by the government – were both unveiled in the final weeks of the quarter.’

Comment by Ben Jones
2014-05-05 08:31:45

‘Indonesia’s finance minister has identified a Chinese slowdown as the biggest single threat to his country’s economy.’

‘In an interview with Emerging Markets, Muhamad Chatib Basri said that slowing growth in China, coupled with declines in commodity prices, were more serious for Indonesia than the tapering of US monetary policy by the Federal Reserve, the announcement of which caused drastic volatility and outflows from the country last year.’

“Maybe I’m too pessimistic, but I will say the resources boom is over,” said Basri. “Last year, because of that, our export revenue collapsed,” as well as tax revenues, which are heavily focused on mining and plantations.’

“And for a country like Indonesia, a slowdown in China has a bigger impact: first, most of the products we export to China are primary products, so a slowdown in China will reduce our exports; and second, if China slows down, the demand for commodities will decline and the commodity price will also decline. It is a double blow for us because 65% of our exports are energy and commodity related.”

Comment by In Colorado
2014-05-05 09:16:28

‘Indonesia’s finance minister has identified a Chinese slowdown as the biggest single threat to his country’s economy.’

A lot of dominoes are going to fall. Oz and Brazil are going to feel this too.

Comment by Blue Skye
2014-05-05 12:04:07

It’s a global party. We are all going to feel it.

Comment by In Colorado
2014-05-05 13:52:02

True. Some will feel it more than others, though.

And, when the SHTF, everyone will rush to the save haven.

(Comments wont nest below this level)
Comment by Blue Skye
2014-05-05 14:28:43

I won’t be rushing anywhere!

Comment by Ben Jones
2014-05-05 08:34:28

‘More than half of young people aged above 16 in Beijing with a college education live in rental housing; about 24.3 percent live with their parents, according to the People’s Daily website.’

‘According to the report, 11.9 percent of young people in Beijing had bought homes by mortgage; 11.6 owned their homes outright; non-homeowners accounted for 76.4 percent.’

‘Most homeowners are financially supported by their parents. Renters pay an average of 2,000 yuan ($319.50) per month, accounting for 37.1 percent of their total monthly income.’

Comment by In Colorado
2014-05-05 09:20:29

What those low paid college grads need are $500K starter flats. And a gas mask for the smog.

Comment by Housing Analyst
2014-05-05 08:53:49

Getting scolded and threatened on the internet by a lying scumbag house salesman makes my day.

Comment by Amy Hoax
2014-05-05 18:27:45

Get a life.

Comment by Housing Analyst
2014-05-05 19:05:35

Go get my Cheetos……

Comment by clark
2014-05-05 21:57:28

Kewl comeback, HA.

The empire lovers are everywhere.

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