The Floor Falling From Beneath Their Feet
Shanghai Daily reports from China. “Shanghai’s new home market remained sluggish for a third straight week. As of Sunday, 315,000 square meters of new homes were sold in Shanghai in May, or a daily average of just 17,500 square meters, according to Uwin data. That compared with 761,300 square meters in April. However, the supply of new homes released locally more than tripled from the previous week to 236,700 square meters, according to the data. ‘There won’t be any major turnaround if developers don’t offer notable price cuts or release more mid- to low-end products to the market,’ said Huang Zhijian, chief analyst at Uwin.”
From NTD TV. “In Q1 2014, real estate investment in four provinces were negative, with Heilongjiang and Jilin declining more than 25 %. Finance scholars Du Meng recently said that China’s property market is in a typical crisis of overproduction, with 68 million vacant housing units. Chinese investment consultant Mr. Deng: ‘Real estate is a comprehensive industry and its risks have in fact already penetrated into all walks of life. When it is prosperous, everyone worships it; when it collapses, it is definitely out of favor. It is a demand all by itself. But the problem is that it has boom and bust cycles.’”
China Economic Review. “Residents in Tangshan are very familiar with the concept of oversupply. A severe glut in the steel industry has put many jobs at risk in the northeastern Chinese city. Between 2009 and 2012, the city was building about 17.4 million square meters of housing space. Yet at the local rate of consumption, some 1.46 million square meters per year, it would take more than a decade to exhaust this supply.”
“In the past year, the price of new housing in some developments has fallen from around US$1,603 (RMB10,000) per square meter to about US$961.8 (RMB6,000), according to Chinese media reports. For anyone who bought at the height of the market, such a sharp drop in prices is the equivalent of the floor falling from beneath their feet.”
“Talking to journalists in Shanghai in May, independent economist and renown China bear Andy Xie told of trips he’d made to small cities filling with empty apartment buildings. Party bosses would point to nearby cities and say that the residents there all planned to move in to the growing supply of housing. But upon visiting those nearby cities, Xie said he found a similar buildout in homes and the same attitude.”
“‘I go to the next city and the party boss tells me exactly the same story: The people over there are going to come,’ he said, drawing laughs from the crowd.”
From Caixin Online. “An investment banker has blamed the recent slowdown in China’s property market on the triple whammy of a graying population, high prices and oversupply – and he says urbanization won’t ride to the rescue. The comments by Ha Jiming, Goldman Sachs vice chairman for China, come amid debate over whether the property market has reached a tipping point after years of soaring prices.”
“High prices for homes mean most people are having difficulty making a purchase, Ha said. He estimated that in many large and medium-sized cities, average monthly payments on mortgages accounted for up to 78 percent of household income last year, up from 62 percent in 2010. ‘Such a high rate is unacceptable for most normal families,’ Ha said, adding that a more reasonable level was 50 percent.”
“Finally, the total area of the country’s commercial properties under construction was 4.9 billion square meters at the end of last year, Ha said, and this was four times what was needed. And this oversupply will only worsen as population growth slows, he said. As for suggestions that rapid urbanization will aid the property market, Ha said many migrant workers cannot afford home prices in big cities. ‘Urbanization can’t save China’s property market.’”
“On May 15, the Chinese Communist Party (CCP) Banking Regulatory Commission launched it’s latest data. By the end of the first quarter of this year, the balance of non-performing loans (NPL) for commercial banks reached 646.1 billion yuan. This marked a record for the highest level in nearly three years. In accordance with mainland China’s regulatory requirements, non-performing loans mean the borrower cannot repay loans.”
“Jack Xu, Taiwan Securities Analyst, points out that the NPL shows the real situation of China’s economy. He said that previously, the superficial economic growth was built on massive loans, not real prosperity. Mainland financial analyst Ren Zhongdao: ‘The CCP’s data is inaccurate, and it is all inflated. Related institutions and scholars have calculated that NPL ratio, in fact, is not as low as suggested.’”
“The French bank Societe Generale gave last year’s estimates. Taking into consideration negative impacts, such as excess capacity, and medium and small cities’ real estate bubbles, Chinese banks NPL ratio may have been close to 10%.”
South China Morning Post. “China will increasingly manage its troubled property sector at a local level as it seeks to avoid sparking either an abrupt slowdown that undermines the economy or another surge in prices, say government economists involved in policy discussions. ‘There is no sign that the central government will relax property controls on a nationwide scale even though the economy is slowing,’ said Zhao Xijun, deputy head of the Finance and Securities Institute at Renmin University in Beijing. ‘The pressure is mainly on local governments, because some of their debts are maturing and they need to repay.’”
From Money Morning. “Xiaoshan, a sub-district of the infamous Hangzhou, is one of the most beautiful regions in China. Xiaoshan has a population of 1.5 million, with a per capita GDP of RMB130,797 (AU$21,800). Xiaoshan’s Gross Regional Product shows that primary agriculture only contributes 3.5% to the overall economy. Tertiary industry produces 35.1%, and the main supporting industry for the region is its secondary industry with 61.4% contribution. Needless to say, Xiaoshan is one of the regions in China that has an overcapacity problem.”
“Behind the Chinese gardens and tea sets in Xiaoshan’s beautiful surroundings is an intensifying battle between the local government and China’s biggest commercial banks. As an angry official told the banks: ‘The government has already expressed in the congress, telling you banks not to recover debts. We want to let whoever is trying recover debt know, that if you continue to do so, Xiaoshan will not welcome you, and you can forget about your own business in this place.’”
“‘There won’t be any major turnaround if developers don’t offer notable price cuts or release more mid- to low-end products to the market,’ said Huang Zhijian, chief analyst at Uwin”
I think the author meant to say “…chief analyst at Ulose”
““In the past year, the price of new housing in some developments has fallen from around US$1,603 (RMB10,000) per square meter to about US$961.8 (RMB6,000)”
$1,603/SM divided by $10.76SF/SM = $149/SF (old price)
$961/SM divided by $10.76SF/SM = $89/SF
It appears they are approaching HA values! $55/SF. HA, Ha, ha, ha, ha…….sum ting wong…..
Too early for dimensional analysis…but I like it!
Maybe it is time for rich California real estate investors to start snapping up Chinese residential property at under $100/SF?
1 billion Chinese! Just think of the pent-up demand and how bullish that is for Chinese RE!
Bethesda, MD Housing Prices Crater 14% YoY; Inventory Balloons 26% As Demand Wanes
http://www.movoto.com/bethesda-md/market-trends/
“‘Real estate is a comprehensive industry and its risks have in fact already penetrated into all walks of life. When it is prosperous, everyone worships it; when it collapses, it is definitely out of favor. It is a demand all by itself. But the problem is that it has boom and bust cycles.’”
“It is a demand all by itself.”
Move over Econ 101! Step aside, real estate is coming through!
Real estate is the wonderful and fabulous and great Dream Machine that will make all the participants RICH well beyond their wildest dreams AND well beyond their means.
And these riches would remain well beyond their means if it weren’t for the true heros is this entire affair and those heros are none other than we, the lenders.
With leverage all things are possible!
A true miracle!
“Move over Econ 101! Step aside, real estate is coming through!”
This message sponsored by the Federal Reserve Bank of the United States of America.
With the full cooperation and approval of most of the citizens of the United States.
Silence is consent.
In this case silence isn’t what is consenting, signing dotted lines is what’s consenting.
The schmucks willingly sign up for something that looks like this:
http://www.youtube.com/watch?v=qdFLPn30dvQ
You think this is abuse? How are you gonna take the abuse you get on a sit?
The Fed
How housing weakness may change the Fed’s game
Ron Insana | @rinsana
Monday, 12 May 2014 | 11:27 AM ETCNBC.com
When Federal Reserve Chair Janet Yellen testified before the Joint Economic Committee of Congress last week, she added a new variable to the Fed’s policy mix — weakness in the housing market.
While in recent weeks, and months, the Fed has focused on two economic variables that are being most closely watched — unemployment and inflation — the mention of housing was significant. Not since the immediate aftermath of the bursting of the real-estate bubble has the Fed focused on the foundation of the American economy as a significant factor is (SEC) guiding decisions on interest rates and quantitative easing.
…
Is not the manipulation of housing to the current high levels not an indication of inflation? Is not the stock piling of new cars around the world to keep car prices artificially high not inflation?
Is not the artificial run up in stock prices not inflation?
Cutesy thing about the stock market is that like houses people are now conditioned to a quick rebound. Ergo, run it down quickly and people will just as quickly run back to buy the dip; great way to spread the wealth by raping the middle class investor.
That’s price fixing and bottlenecking.
Learn the difference.
Learn the difference, that is inflation by any standard. It is hidden so that it doesn’t have to show as such in government numbers. A pig is a pig no matter how you dress it!
That’s not inflation my friend. Learn the difference.
Speculation and price-fixing are not inflation.
“Is not the manipulation of housing to the current high levels not an indication of inflation? Is not the stock piling of new cars around the world to keep car prices artificially high not inflation? Is not the artificial run up in stock prices not inflation?”
Stagflation, a former acquaintance from the seventies.
Burning question: Will the crash of China’s real estate market end the flood of all-cash Chinese investors who helped to drive home prices skyward in west coast U.S. markets, such as San Diego, LA, San Francisco, Sacramento, Portland, Seattle, Vancouver, etc?
Mclean, VA Housing Prices Dive 11% YoY; Inventory Balloons 29%
http://www.movoto.com/mclean-va/market-trends/
Alexandria, VA Housing Prices Crumble 9% YoY As Inventory Skyrockets 59%
http://www.movoto.com/alexandria-va/market-trends/
China
Is China’s Housing Bubble Beginning to Burst?
By Christina Larson
May 19, 2014
Residential apartment buildings under construction in Qingzhou city, in east China’s Shandong province
Earlier this month, financial analysts from Japan-based Nomura Group (NMR) issued a grim report on China’s housing market: “To us, it is no longer a question of ‘if’ but rather ‘how severe’ the property market correction will be,” the report read.
Nomura—which has historically been bearish on China, as the Wall Street Journal observes—predicted that a downturn in the housing market, caused by oversupply and shrinking developer financing, could sharply impact China’s economy, perhaps even driving GDP growth to less than 6 percent in 2014.
China’s economy is vulnerable because property investment accounts for anywhere from 16 percent to 20 percent of gross domestic product, according to varying analyses.
Data released on Sunday by China’s National Bureau of Statistics show that an increasing number of major Chinese cities surveyed experienced month-on-month housing declines in April (eight cities) compared with March (four).
Hangzhou, the capital of eastern Zhejiang province, saw the steepest decline, with new-home prices dropping 0.7 percent in April. The other seven cities surveyed that reported declines were Ningbo, Wuxi, Wenzhou, Jinhua, Anqing, Ganzhou, and Huizhou.
…
Bethesda, MD(DC Metro) Rental Rates Slip 5% YoY; Fall To 5 Year Low
http://www.zillow.com/local-info/MD-Bethesda-home-value/r_37406/#metric=mt%3D46%26dt%3D1%26tp%3D6%26rt%3D8%26r%3D37406%26el%3D0
Takoma Park(DC Metro) Housing Demand Collapse 18% YoY
http://www.zillow.com/local-info/MD-Takoma-Park-home-value/r_47942/#metric=mt%3D30%26dt%3D1%26tp%3D4%26rt%3D8%26r%3D47942%26el%3D0
“We want to let whoever is trying recover debt know, that if you continue to do so, Xiaoshan will not welcome you, and you can forget about your own business in this place.”
Debts that cannot be repaid, and they still think they are special.
When I read that, it reminded me of the foreclosure auctions during the Depression when neighbors ran off the banks who tried to repo the farms.
Vienna, VA(DC Metro) Housing Demand Collapses 18% YoY
http://www.zillow.com/local-info/VA-Vienna-home-value/r_21080/#metric=mt%3D30%26dt%3D1%26tp%3D5%26rt%3D8%26r%3D21080%252C248656%26el%3D0
Oakton, VA (DC Area) Housing Prices Crater 14% As Inventory Balloons 70%; Buyers Disappear
http://www.movoto.com/oakton-va/market-trends/
Fairfax, VA (DC Metro) Housing Demand Evaporates As Inventory Explodes 90%- Prices Slide 11% YoY
http://www.movoto.com/fairfax-va/market-trends/
I’m up 8% ,but that’s just my luck
22151 dnc supported w endless fed hiring
Good luck finding a buyer at that price.
“‘I go to the next city and the party boss tells me exactly the same story: The people over there are going to come,’ he said, drawing laughs from the crowd.”
“Why would pay more than new construction cost ($55 per square foot) for a rapidly depreciating 20+ year old resale house?”
Let me guess…… Because realtors tell you that the cost of a house cannot be evaluated using math?
San Clemente, CA Housing Prices Collapse 24% YoY: Inventory Balloons As Housing Demand Stumbles
http://www.movoto.com/san-clemente-ca/market-trends/
Did anyone ever point out that you are a one-man wrecking crew when it comes to bubble prices?
“So do you really think wages are going to double or triple to meet inflated prices of everything? Of course not. Prices will fall by 50% to meet existing wages as housing demand continues to collapse.”
“High prices for homes mean most people are having difficulty making a purchase, Ha said. He estimated that in many large and medium-sized cities, average monthly payments on mortgages accounted for up to 78 percent of household income last year, up from 62 percent in 2010. ‘Such a high rate is unacceptable for most normal families,’ Ha said, adding that a more reasonable level was 50 percent.”
Wasn’t the old rule-of-thumb for housing costs as a share of family income something like 28 percent? (BTW we pay about 22 percent these days in rent.)
Home loan qualifying in the U.S. is typically 34% total pre tax income to home loan debt (top ratio) over 38% of total pre tax income to combined total debt (home loan + car payment + credit cards).
Home loan debt in Europe is supposedly about 50% of pre tax income (top ratio). I don’t know the bottom ratio.
“Prices will fall by 50% to meet existing wages as housing demand continues to collapse.”
And why is that? If you can’t buy, you rent. If wages cannot support rent, wages have to rise for people to afford a roof over their head or move, or rents have to be lowered. If rents are lowered some apartment or home owners may loose of sell their property and the new owner will probably be another investor.
BTW: my housing cost as a percent of family income is 17%.
Good. You answered your own question.
‘A few years ago, a senior official visiting Beijing from overseas is understood to have asked his embassy staff about the number of unoccupied residential tower blocks he had seen in the capital. It is a familiar sight in most major cities in China and their suburbs, but that only makes it all the more puzzling. Despite the fact that the lights were not on, the apartments were not empty, he was assured. A staff member quipped, “People are storing their money there.”
‘The story illustrates neatly how vast sections of Chinese property buyers look upon property investment - and gold for that matter - as a way to fight inflation. (Sound familiar?) In China, bank deposit rates are regulated and kept low, so many Chinese see property as a good alternative investment to shares. In addition, its state-owned enterprises do not pay dividends and often speculate in property investment as well. The pervasiveness of property speculation was brought home to me a few years ago when a young Chinese colleague, straight out of journalism school, said she owned an apartment in Beijing but had not had the money to put in even bathroom fixtures and a sink. She had bought it solely to ride the property boom.’
‘Despite the fact that the lights were not on, the apartments were not empty, he was assured. A staff member quipped, “People are storing their money there.”’
When those buildings crumble to the ground within the next couple of decades, so will the ’stored money.’
‘China’s home prices rose more slowly in April, with more cities experiencing price drops and weaker sales. The weaker sales led to an increased inventory of unsold homes. In the first four months, sales of residential houses fell 8.6 percent compared with the same period last year. In April alone, the inventory of unsold housing increased by more than 2 million square meters, or 20,000 apartments.’
‘Observers like Ma Guangyuan, a member of the 12th Beijing Municipal Committee of the Chinese People’s Political Consultative Conference and director of the Private Economy Research Center under Renmin University of China, find it hard not to conclude that the decade-long Chinese real estate boom may be over.’
“Along with the slowing price increases is the drastic drop in home sales. In Beijing, only 2,221 new homes were sold in February, a record low since 2007,” Ma wrote. “The February volume for sales of secondhand houses was 5,441, decreasing by 38 percent from January and 46.3 percent from a year earlier, a new low in 24 months.”
‘Among the most prominent of the China bears is Jim Chanos of Kynikos Associates, who said the “Chinese economic model is broken” as the country increasingly relies on credit to fuel its growth. “Too much credit is being used to drive GDP through real estate,” said Chanos, who believed the evidence of rising risks existed outside the main centres of Beijing and Shanghai.’
“It’s not until you go to the third and fourth tier cities you see the magnitude of construction, and what a giant construction site is China,” said Chanos, who sent a team of analysts on site visits to China.’
‘Jin Liqun, the chairman of China Investment Corporation, said China will not suffer a mortgage crisis similar to the US because the banks are more conservative, only providing funds to those with steady jobs who can afford a 60 per cent down-payment.’
“People may lose their savings, but [the system] will not have significant issues. The bubble will burst in the pockets of the home owner and will not hurt the financial system,” said Liqun.’
‘Jose Luis Daza, chief investment officer of QFR Capital Management, a New York-based asset manager, said that financial crises typically occurred when countries took on too much external credit relative to their domestic savings. Only Japan suffered a financial crisis with internally generated savings, but the key difference compared to China is that Japanese wages were significantly higher.’
“I don’t think we will have a big crisis in China. Consumers will take losses but there won’t be a slowdown in GDP,” he said.’
“Too much credit is being used to drive GDP through real estate,”
What is the difference between the Chinese economic model and the U.S. economic model?
GDP is driven by the housing boom which is driven by credit expansion. The boom will bust but GDP will be fine. Oh?
‘The recent downturn of China’s mercurial property market appears to have driven at least one tycoon away from the business. Song Weiping, the chairman of Hangzhou luxury developer Greentown China Holdings is stepping back from his role at the helm of the mid-size property firm as the real estate market — once a surefire money maker — takes it on the chin.’
‘Prices have been sliding as the economy slows and many developers are stretched for cash. Greentown has been one of the firms feeling the pinch: its sales slipped nearly 4% in the first four months of this year.’
‘In a visit to Wuxi in east China last week, Mr. Song said that difficulties the companies faced in selling homes in an “excellent” residential property on land purchased by Greentown six years ago was a sign of troubles facing the sector.’
“The price isn’t too expensive, but because too many customers are restricted by property curbs, this has become hard-to-sell inventory,” he said.’
‘The credit situation is such that if steel mills don’t maintain their production the banks demand their loans. Recently a large mill in Tianjin stopped production due to losses and called loans, and the local government stepped in along with the CBRC the solve the problem.’
‘Currently the steel industry is about ￥3 trillion in debt, about half is bank loans, and banks have pulled about 10% of their loans, or ￥140 billion. At the same time that banks are pulling credit, they are also hiking interest rates. One estimate says steel mill financing costs are up 22%, and even state owned industries are facing higher costs because the government has removed preferential policies.’
‘Put it all together and it looks like lights out for the steel industry. Finally, this is a newspaper inforgraphic on Chinese steel from an August 2013 post. On the right hand side is an image of an iPhone, then some meat, then a popsicle. These are the profit margins on a ton of steel over the past several years.’
‘Citing statistics that revealed hoarding of home properties by individuals and institutions, Taipei City Councilor Wang Hong-wei on Monday raised concerns over the government’s lack of resolve and inability to produce tangible results in suppressing rampantly rising housing prices.’
‘According to Wang, property ownership records published on Monday unveiled that an individual owning 59 homes and a company in possession of 673 homes are listed among the most affluent homeowners in Taipei City.’
‘In addition, 13.01 percent of Taipei City homeowners were found to have more than two housing properties to their name, with 2.84 percent of the populace owning more than three homes. Statistics also indicate that the number of individuals owning more than eight homes was tallied at 1,241, with 352 companies found to own more than eight homes.’
‘Meanwhile, statistics show that at current wage levels, the average citizen would need to save for 15 years excluding the burdens of expenses to be able to afford a home in Taipei City.’
Kinda funny how the Chinese government takes measures to tamp down rampant housing price inflation while the U.S. government openly encourages and cheerleads it.
I wonder if you can use your principle home as collateral on another house, then use that house as collateral on a third…..
‘So-called “Chinese capital flight” – that is, Chinese investors fleeing from China– may cause the flow of Chinese capital into Vietnam to soar in the years to come. Analysts all have noted that Chinese capital has been finding its way to Vietnam through different means, especially through Hong Kong and Singapore.
Dr. Alan Phan commented that in the capital flight movement, Chinese funds have been flowing en masse into Europe, the US, Australia and the two most liberal financial centers, Hong Kong and Singapore. This has led to the deposit surplus in Singapore reaching its highest peak, forcing Singaporean financial institutions to re-invest the money in other places.’
‘The strong capital flow to Singapore has created a real estate bubble in the country. Therefore, the Singaporean government has encouraged the country’s financial institutions to make outward investments to ease the domestic pressure.’
‘In the capital flight movement, Asia’s richest billionaire, Li KaShing, in 2013 sold off a series of projects in China. The move attracted special attention from other investors, because the billionaire reportedly tends to unload his assets 2-3 years before crisis hits.’
‘In the capital flight movement, Asia’s richest billionaire, Li KaShing, in 2013 sold off a series of projects in China. The move attracted special attention from other investors, because the billionaire reportedly tends to unload his assets 2-3 years before crisis hits.’
Money walks, BS talks.
‘Double digit iron ore prices remain bearish. Triggering reason for the dip has been recent hounding by the Chinese regulatory authorities of the rampant misuse of credit lines by the mills to import iron ore and using it has collateral to eke out credit from banks.’
‘This tendency has led to highly inflated buying despite slow finished demand huge stockpiles at ports. Since 4 weeks back when the authorities set deadlines for the banks to come above board most of these mills have indulged in panic sales of volumes booked or stocked thereby leading to collapse in price levels.’
‘The other important reason has been market worries that demand from China is being outpaced by increasing output of the steelmaking raw material from international miners. Australian mining companies like BHP Billiton Ltd, Rio Tinto and Fortescue Metals Group Ltd. have poured billions of dollars into new mines or existing operations over the past few years as the value of industrial commodities soared to record levels in response to robust demand from China. The country is the world’s largest buyer of iron ore, accounting for more than 60% of seaborne trade.’
‘Rio Tinto already has committed to boosting annual iron-ore output in Australia by more than 20% over the next four years in a bet Chinese demand will stay strong. Fortescue Metals and BHP also are building up their production.’
‘The trend is unlikely to be reversed soon since the finished steel demand remains sluggish and government is in overdrive to cut down capacities to rein in steel production. Ultimately these measures will bring down iron ore consumption.’
‘New Zealand log prices appear to have levelled out after a strong run over the last year and could be on their way down if market conditions in China deteriorate, economists said. While the boom in dairy prices has tended to dominate the main New Zealand commodities groups, the log trade has also been a strong performer, registering a series of sturdy gains over the past year or so.’
‘The resulting increased supply, alongside signs of a cooling off in demand in China’s housing markets, is expected to put downward pressure on prices, ASB Bank rural economist Nathan Penny said. “At this stage, they [prices] have flattened and fallen a touch, but we would expect them to come off the boil over the rest of this year because of those issues on the supply side and on that hint of housing weakness in China,” Penny said.’
‘ANZ economists said in a market commentary that anecdotes about the state of the Chinese housing market had been grim for some time, but now the problem was starting to show up in official data. Developers continue to offer deep discounts, and some local governments are easing property curbs, the ANZ said in a commentary.’
“A property slowdown has long been desired by the authorities, but there is a risk this train could overrun the station,” ANZ said.’
“Sacramento Realtor Sentenced to 13 Years For Ponzi Scheme”
http://www.sacmetronews.com/2014/04/elk.grove.citizen.ponzi.scheme.ronald.russell.html
This is a good example as to why buying a house is fraught with risk and loss. Especially in CA.
Crazy Stealtor!
Year Over Year Housing Demand Plunging In 53 Of 58 California Counties
http://www.zillow.com/local-info/CA-home-value/r_9/#metric=mt%3D30%26dt%3D1%26tp%3D5%26rt%3D4%26r%3D9%252C3101%252C1286%252C2841%26el%3D0
Oh my word…..
Ben, I don’t know how you do it, but your China posts are the most comprehensive of any site I visit, and I visit a lot of sites looking for real information, as opposed to the business media official statistic quoters. You seem to have a lock on providing the most detailed and comprehensive links to the ongoing China trainwreck. Keep up the good work!
“Keep up the good work!”
+1 Agreed.
Might as well hit Ben’s Paypal button too since money is the mother’s milk of blogging.
Fair enough. Since this road was not taken, we are witnessing an economic collapse driven by excess supply and capacity on one side and collapsing demand on the other.
As ye sow, shall ye reap.