The Idiot-Proof Property Market
A report from Want China Times. “In the first half of the year, China’s property market entered the stage of structural oversupply, with first-tier cities, which had been seen as the most secure market, encountering apparent declines in sold areas, the Beijing-based Economic Information Daily reports. The actual situation reverses expectations, with sales volume in first-tier cities actually leading the overall market, indicating the property prices in the first-tier cities may soon encounter big downward corrections.”
“When property bubbles begin to burst, the high property prices are still beyond the affordability of most buyers. Therefore, the price declines may quickly fall to much lower levels. Moreover, in first-tier cities about 20% to 30% of households already own multiple houses. Most buyers have adopted a wait-and-see attitude amid rising personal credit costs and the anticipation of further declines. Banks have been tightening mortgage approvals to control risks as the market adjusts. It seems certain then that first-tier cities have entered a cycle of major downward corrections.”
From CNBC. ” For the first time in three years lands plots up for auction in Beijing went unsold last week, signaling that developers are nervous about ongoing weakness in the country’s property market. Two of the five lots put up for sale by the Beijing government last week received no bids – for the first time since April 2011, according to Chinese media reports. In another auction on Monday, two of four lots were sold to developers at lower-than-expected prices.”
“Local governments in China rely on land sales for the bulk of their revenue and are unwilling to budge on high prices. According to Ryan Huang, strategist at IG’s Singapore office, the unsold auctions suggest ‘a mismatch between what increasingly cautious developers are willing to pay versus what local governments want.’ ‘We’re likely to see the relatively muted appetite by property developers continue, as investors get increasingly concerned over a property slump and take a wait-and-see attitude,’ added Huang.”
From Bloomberg. “China’s slumping property market is fueling speculation the industry is set for a shakeout as small developers face difficulty raising funds to pay off debt. Home prices fell in 55 of 70 cities in June from May, the National Bureau of Statistics said on July 18, the most since January 2011 when the government changed the way it compiles the data. The inventory of unsold new homes in 20 large cities jumped to an average equivalent of more than 23 months of sales in June, according to Shenzhen World Union Properties Consultancy Inc. The floor space of unsold new apartments nationwide as of June 30 surged 25 percent from a year earlier, government data show.”
“‘The overall credit environment is tight for smaller developers,’ said Fu Bei, an analyst at S&P in Hong Kong. ‘Banks and trust companies have reduced their financial support for such companies given the rising risk. Given the declining credit to small developers and the weaker home sales, there will continue to be defaults of smaller developers this year.’”
The Epoch Times. “Up until 2014 the term bankruptcy was unheard of in China. It just wasn’t allowed. Now, about $1 billion worth of junk bond debt is about to go sour within the next three months, according to a report by China Merchants Securities Co. ‘The current risks exposed in the private-bond market are probably a prelude to a storm,’ Sun Binbin, a Shanghai-based bond analyst at China Merchants told Bloomberg News.”
“Goldman Sachs goes even further and writes in a note, ‘The logical conclusion has to be that a non-negligible share of the corporate sector is not able to repay either principal or interest, which qualifies as Ponzi financing.’”
From Xinhua. “The cooling of China’s property market is likely to encourage authorities to speed up property tax reforms, which many believe will play a key role in putting the sector back on track. The absence of such a system has enabled many Chinese to capitalize on the country’s over-heated property market, making it a major source of public complaints over recent years.”
“Believing that there is not much room for a sharp appreciation amid the current market downturn, Zhao Zhengguo (not his real name) has this year sold two of several apartments he owned in Beijing in order to secure cash. ‘It will not be long before the property tax spreads over the country. The tax itself is not a problem, but it will make housing less reliable as an investment choice,’ said Zhao, who rose from a wage earner to a billionaire thanks to his housing investment.”
“Gone are the days when Chinese property developers could make a killing simply by building more houses. It used to be the case that bad money drove out good, as large developers focusing on providing quality and much-needed houses usually earned less than smaller ones which relied on rising housing prices. ‘The past decade saw the establishment of an idiot-proof property market, one in which almost all market players could earn quick and handsome money by building houses,’ said Chen Aiming, CEO of Sincere Group, a large developer in southwestern China’s Chongqing Municipality.”
The South China Morning Post. “One of the theories of China’s slowing economy is that it will run into a ‘Lehman moment.’ This is when a single financial institution collapses, threatening the entire banking system, ultimately creating a financial crisis. The theory has neat predictive power: find the weak links among Chinese banks, pin down a useful measure of financial liquidity - such as the interbank lending rate - and you have a nice way of keeping tabs on the strength or weakness of China’s economy. The problem is the theory may be wrong.”
“Property loans accounted for 26 per cent of new loans in 2013. Also, property developers are major borrowers in the shadow banking sector. As the property market slows, the government continues to promote mortgage lending. It is quite likely that cash-strapped townships are going to be confronted with real estate projects that are worth much less than they thought. As asset values fall, income from land sales will also decline. Thus, they are likely to curtail spending.”
“In its just released report on China, the International Monetary Fund described the chain well: “Many strands of the web, moreover, run through the real estate sector. Banks and shadow banks are exposed to real estate directly through credit to developers and household mortgages, and indirectly through the use of real estate as collateral for other loans. Local government spending is also linked to the real estate sector, directly through land sales revenue and indirectly through the tax revenue generated by real estate related activity.’”
“‘Given these interconnections, a major shock to any part of the web would reverberate throughout the whole, creating a negative feedback loop that could … amplify the original shock.’ So, let’s stop getting caught up in neat catchphrases about the Lehman moment and focus on the real problem in China - the real estate bubble.”
Redmond, WA Housing Prices Turn Negative At Peak of Season; Price Reductions Balloon 166% As Housing Demand Collapses
http://www.movoto.com/redmond-wa/market-trends/
D O N K E Y
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…..
HA: I’m not understanding what you are trying to point out with that link about 53/58 California counties. What stat should we be looking at? Thx.
You dont?
Yep.
First of all, the link pretty much doesn’t work. It goes to a page with a graph which never load, won’t let me switch between stats, and the only thing it will show me is Metros. I’ve tried this on every browser on the Mac and PC.
You mentioned Alameda County as one of the problem counties in a previous post, and *hurray* I can get access to that page. But looking through all the Alameda graphs, all I see if the usual horror show of inflating prices. Nothing to indicate a decrease in demand.
I really do want to understand.
It works for us. It appears you have computer problems.
You don’t have computer problems CJ.
Not liking the direction of things eh?
No. I don’t like you.
Redmond is the new Poughkeepsie NY of IBM fame!
A crater here, a crater there, here a crater, there a crater everywhere a craterin’.
Salem, OR Housing Prices Turn Negative; Seller Price Reductions Skyrocket 148% As New Listing Mushroom 141%
http://www.movoto.com/salem-or/market-trends/
what’s our share of wb/IMF –20% so no worries they’ll fix it w our money
they work and retire tax free- the world pays their taxes
“Moreover, in first-tier cities about 20% to 30% of households already own multiple houses. Most buyers have adopted a wait-and-see attitude amid rising personal credit costs and the anticipation of further declines. Banks have been tightening mortgage approvals to control risks as the market adjusts. It seems certain then that first-tier cities have entered a cycle of major downward corrections.”
Bahahahahahahahaha … the people who live in China are just as stupid as the people who live over here.
I especially enjoyed reading this line …
“… in first-tier cities about 20% to 30% of households already own multiple houses.”
Bahahahahahahaha … David Lereah lives, and he lives in China!
Bahahahahahahahahahahahahahahahahahahahahahahahaha
How are the people who own multiple houses with a plan to sell them when prices go up enough going to find other people to sell them to at a higher price, given that so many people already own multiple houses?
They will solve their problems buy purchasing more real estate in the United States.
“Local governments in China rely on land sales for the bulk of their revenue and are unwilling to budge on high prices.”
Bahahahahahahaha … hey, they’re the government, why can’t they just legislate high prices?
High prices forever!
Bahahahahahahahahahahahahahaha
“Up until 2014 the term bankruptcy was unheard of in China. It just wasn’t allowed.”
Bahahahahahahahahahahahaha … these Chinese are a laugh a minute.
“Now, about $1 billion worth of junk bond debt is about to go sour within the next three months, according to a report by China Merchants Securities Co. ‘The current risks exposed in the private-bond market are probably a prelude to a storm,’ Sun Binbin, a Shanghai-based bond analyst at China Merchants told Bloomberg News.”
Hey, Albuquerque Dan, are you out there?
“Goldman Sachs goes even further and writes in a note, ‘The logical conclusion has to be that a non-negligible share of the corporate sector is not able to repay either principal or interest, which qualifies as Ponzi financing.’”
“Ponzi financing”.
Say it ain’t so!
Bahahahahahahahahahahahahahahahahahaha
“Hey, Albuquerque Dan, are you out there?”
Let sleeping dogs lie, and lying dogs sleep.
‘The sum of the gross domestic product for 31 Chinese provinces and regions for the first half of this year exceeds the GDP recorded nationwide during the same period, indicating that local governments are miscalculating or misreporting data.’
‘The national GDP was pegged at 26.9 trillion yuan (US$4.37 trillion) during the first six months of 2014, but the sum of GDP in mainland China’s 31 province-level regions stood at 30.28 trillion yuan (US$4.92 trillion), a discrepancy of over 3 trillion yuan, according to data compiled by the National Bureau of Statistics (NBS).’
‘Some analysts noted that certain local governments had inflated their GDP performance, bearing considerable pressure from the economic slowdown.’
Most remarkably, despite the inconsistent reporting which resulted in the sum of provincial and regional GDP exceeding nationwide GDP during the same period, China’s GDP growth rate once more nailed 7.5% right on the head, as independently validated by economists the world over.
“…creating a negative feedback loop that could … amplify the original shock.”
Having built enough housing for twice their population is quite the starting place for an unwinding.
Transitioning from local governments making all their money by selling the people their own land back to taxing real estate is quite an original shock. Owning multiple houses that are going down (by any amount) and are now going to be taxed should crowd the exits.
Now that Dan can’t hijack the thread with his GDP predictions, I would like to explain the sort of stuff that was going on in the banking sector in China about 20 years ago.
Once upon a time, China was looking for financing for the Three Gorges Dam, but the US and European banks were not inclined to lend. There was a lot of yelling from shareholders and the public in general that the project was a human rights nightmare and iffy on the environment and (I think) was going to put some interesting archeological sites permanently under water. The US and European banks figured that this was a nice, easy thing to reject to polish up their image. Lots of good publicity without really foregoing that much money.
Enter the first law firm I worked for after graduating. The Chinese goverment created a bank. It had a really friendly sounding name. Can’t remember it exactly but the general sense was Chinese Trade and Commerce Bank - something like that. Sounded like a place where Chinese companies could get loans to engage in trade with the West. Every one should be happy, right?
But this bank needed capital. Lots of capital. So we did a bond offering. A really, really big one. Lots of money from the US credit markets in dollar denominated bonds to fund this specialty bank in China, set up and owned by the Chinese government.
What did they do with the money? Did they lend to local companies so they could engage with trade with the West? Did they lend to foreign companies setting up divisions in China? Not as far as I know. What I do know that it did (read in newspaper a year or two later), is that it funded a gigantic portion of the Three Gorges Dam.
Moral of the story is: Just because something in China looks like it is “internally funded” doesn’t mean that it is internally funded. You have to get way down in the weeds of the capital structure of the banks (and other sources of capital?) before you can know that China sneezing isn’t going to cause colds all over the globe.
The end.
This is a good example of why nobody really knows what’s going on in China. You can’t base things upon press releases, etc., you’ve got to rely upon boots on the ground facts, which are exceedingly difficult to come by.
What a coincidence. Banks in the US are also funded by borrowed money, which is in turn borrowed from the US government.
Maybe it is borrowed from the Federal Reserve Bank, with the defaulting blessing of the US Government.
And maybe the Federal Reserve Bank exchanges Federal Reserve notes for US treasuries, thereby enabling the US Congress to control the flow of money and, in the end, to sleep with dogs.
Is this about Reservoir Dogs?
Either that or it is the other way around. I suspect credit extended by the fed is an order of magnitude larger than the debt of the Treasury. Rather sad, since the Treasury is supposed to issue the currency, not borrow it from the Banking Cartel.
MAYBE the Federal Reserve lends money into a fractional banking system, with ever-decreasing minimum reserve requirements, allowing the US Congress to leverage their taxing authority by 10x or more! Perhaps it is this (this) that leads us to the “business cycle” in the United States. Verily, then, it is not the business cycle, but rather the public-private partnership between elected representatives and incredibly, enourmously, grotesquely wealthy people that causes the repetitive boom and bust cycles that have become synonymous with crony capitalisim, and which will soon appear in the cronier-capitalist corners of Communist China.
Bingo! It’s not like they own a forest full of money trees.
“The cooling of China’s property market is likely to encourage authorities to speed up property tax reforms, which many believe will play a key role in putting the sector back on track.
Oh my goodness, that’s rich. The conclusion that it will result in “putting the sector back on track”—wow! Just—wow!
Imagine the 20-30% of families who own multiple houses, because of the investment returns. Suddenly, the investment returns are negative—and on top of that, the local governments change their funding model from land sales (e.g. funding from new development) to property taxes (funding from the existing housing stock). Now their returns are even MORE negative.
Property taxes should put the sector “back on track” alright, as long as you believe that “on track” means popping the bubble and returning the market to something supported by fundamentals.
Should be an interesting ride!
Tax on property that is not owned by the taxpayer.
I won’t live long enough to see how that works out, but it is going to be interesting.
There was an example here in microcosm some years ago. The Seneca Indian Reservation in Salamanca had leased building lots for 100 years in what was then a lumber/railroad boomtown. The leases were up 10 or 20 years ago and the Senecas told the whites to pound sand. Some accidental fires resulted.
A billion or so Chinese at the end of their lease might be a more formidable force. Not that I think the Commie government will last that long.
The real end of western hegemony will come when China’s Commie government goes away.
‘The average bad-loan ratio for Chinese commercial banks reached a three-year high of 1.08 percent at the end of June, above the regulator’s 1 percent red line, but still below most analysts’ estimates which range as high as 5 percent.’
‘Bankers and analysts expect bad debts to rise further as the slowing economy makes it harder to repay loans taken out during the Beijing-orchestrated lending binge to soften the impact of the global financial crisis and there are signs this rise could be faster than banks may have anticipated only a few months ago.’
‘Lawyers for banks say increasing numbers of transactions fall through because of lenders’ last-minute risk worries. A senior lawyer, who works for Industrial and Commercial Bank of China Ltd among others, said only a third of the financing deals she had been asked to work on were actually completed this year. This compares to 70 percent in the last two years, she said.’
‘The lawyer declined to be named because she is not authorised to speak to the media. An ICBC spokesman said the bank had not changed its approach to risk and the value of its non-performing loans was low.’
‘In March, Reuters reported that Chinese banks had become unsettled by some highly publicized defaults and were toughening terms for highly indebted borrowers or those plagued by overcapacity. Now it appears that banks are moving one step further, effectively cutting off many private firms from financing.’
‘CHINA’S “trust companies” are a growth industry, notable not for imparting stability to the country’s $9.2 trillion (R98 trillion) economy, but for the red flags they raise.’
‘One figure stands out: the $343 billion these non-bank lenders owe in interest and principal repayments this quarter alone. This topic may not sound very exciting to those far removed from the mechanics of China Incorporated and President Xi Jinping’s efforts to rein in credit and investment bubbles.’
‘But these non-bank lenders are at the core of the shadow banking industry that makes China’s financial system both opaque and fragile. The greater the repayment requirements, the greater the risk of a miss and the turmoil that might follow. That’s why the latest report from Hu Yifan of Haitong International Securities, titled “Day of Reckoning for China Trusts”, is so troubling.’
‘From now through to next year, Hu says, such repayments will be at elevated levels. The odds on missed payments and headline-making credit events are increasing as data suggest government stimulus measures are gaining less traction than in years past.’
“The brisk development of trust funds is leading to a dead end,” Hu says.’
“Industrial and Commercial Bank of China Ltd”
Same or different?
‘More than 150 economic fugitives from China, most of whom are corrupt officials or face allegations of corruption, remain at large in the United States, according to an official from the Ministry of Public Security.’
“The US has become the top destination for Chinese fugitives fleeing the law,” said Liao Jinrong, director general of the International Cooperation Bureau under the Ministry of Public Security.’
‘Figures from the ministry show that during the past decade, Chinese police have brought only two fugitives home to stand trial. One of those was the high-profile fugitive Yu Zhendong, former head of the Bank of China branch in Kaiping, Guangdong province.’
‘Yu was found guilty of corruption and embezzlement of funds of up to $482 million, and was repatriated in 2005 after spending four years on the run.’
“We face practical difficulties in getting fugitives who fled to the US back to face trial due to the lack of an extradition treaty and the complex and lengthy legal procedures, ” Liao said.’
It’s interesting what the two countries’ respective comparative advantages are. China has a comparative advantage in slave labor and environmental degradation, and we have one in the decriminalization of fraud, insider trading, and other typically white-collar financial transgressions. As for the Chinese fugitives, our real estate market wants their money so it’s all good!
‘Wealthy foreigners hoping to fast-track immigration to Canada are preparing to sue Ottawa over the government’s cancellation of its immigrant investor programme, which has been assailed for allowing rich Chinese to buy their way into Canada.’
‘Timothy Leahy, a lawyer who represents a group of mostly Chinese would-be immigrants in an ongoing case over long wait times for the now-defunct programme, said he expects to file a second lawsuit within two months. This time, he and fellow immigration lawyer Rocco Galati are eyeing class action.’
“We’re going to try to start a so-called class action for the investors whose files were closed,” Leahy said. “If closing down the files is struck down as illegal, it would apply to everybody.”
‘Nearly 30,000 Chinese landed in Vancouver in the 1980s and 1990s on investor-class visas, according to data compiled by David Ley, a Vancouver-based geographer and author of the book “Millionaire Migrants”.
“This was all quite deliberate,” said Ley, who is also a professor at the University of British Columbia. “Basically, the three levels of Canadian government here - city, province and federal - were very eager to get investment from East Asia.”
‘In the 2000s, Chinese applications soared, hitting a peak in 2010. By 2012, the backlog of unprocessed applications in Hong Kong alone hit 16,340, up from just 1,645 in 2006, according to court documents. Each applicant may represent numerous dependents.’
‘At the same time, housing prices were soaring in Vancouver…spurring a backlash against foreign investors for pricing ordinary Canadians out of the housing market.’
‘After the cancellation of the investor immigrant programme, realtors and developers braced for a collapse of Vancouver’s luxury housing market, but so far that has not happened.’
“We have not seen any measurable impact on Chinese demand for property in Canada as a result of the ending of the investment visa programme,” said Andrew Taylor, co-CEO of Juwai.com, an online marketplace that helps Chinese people to invest in overseas real estate. “Canada is still a top-five country for Chinese buyers. The music will keep playing as long as Canada is willing and China is wealthy.”
“Oversupply first emerged in China as early as 2011, mainly characterized by slack housing sales in small and medium-sized cities,” the Chinese Academy of Social Sciences said in a report released on July 28. “That trend started to appear in larger cities this year.”
‘In Shanghai, for instance, the stock of new homes, excluding government-subsidized affordable housing, stood above 11.6 million square meters as of Friday, according to the city’s official real estate website. That compared with about 700,000 square meters in July. In the first half, 4.06 million square meters were sold in the city, and Shanghai Deovolente Realty Co said that equaled a 40 percent drop from the second half of 2013 and a year-on-year decline of 33 percent.’
‘Since 2011, new home starts in China have outnumbered sales by about 1.2 billion square meters, DTZ said, making oversupply an extremely serious problem, particularly in smaller cities.’
“In Shanghai, for instance, the stock of new homes, excluding government-subsidized affordable housing, stood above 11.6 million square meters as of Friday, according to the city’s official real estate website. That compared with about 700,000 square meters in July.”
700,000 square meters can be written as 0.7 million square meters.
How do you get from 0.7 million square meters to above 11.6 million square meters (16X increase) in less than 30 days? It’s exploding!!!!!
‘After a year of relative inactivity on real estate strategy, Chinese premier Li Keqiang recently began seeking comments on a draft bill that would introduce a long-awaited property registration system to deliver more transparency in ownership.’
‘Shortly after Li’s announcement, China’s central inspection teams revealed that in its previous three rounds of inspections, 20 of the 21 provinces inspected, or 95%, were plagued with corruption in their respective real estate sectors.’
‘Since 2000, more than half of the hundred or so Chinese officials at the provincial level who have been nabbed for graft were implicated in real estate corruption. Some officials were said to have owned dozens or even hundreds of properties, Duowei said, although the extent of the corruption goes all the way around the chain, from forcibly acquiring land to financing, procurements and construction tenders. One of the most lucrative practices is said to involve corrupt officials and property developers, who plot to forcibly aquire valuable land from rural or impoverished residents at cheap prices before selling the land for massive profits.’
‘Industry insiders told Duowei that they believe the introduction of a property registration system will be Beijing’s biggest “weapon” against rising housing prices, while China’s ongoing anti-corruption campaign could very well be the property sector’s biggest “regulator.”
Realtor And Mortgage Broker Face Federal Fraud Indictment In House Flipping Scheme
http://www.desmoinesregister.com/story/news/crime-and-courts/2014/08/12/five-charged-house-flipping-scheme/13937815/
All the typical characteristics are here… phony documents, the ‘housing is an investment” lie, excess empty inventory, etc…
zillow- you have to join their club now to see next year estimates?
they have some areas that seem to be in tank mode going up next year
tampa etc………..
Their projections are like fairy dust.
Luckily their estimates suck…so no loss to not joining the club.
“IMF economists looked at 43 countries over 50 years and found that just four had seen credit grow as rapidly as China had in the past five years — and all four faced banking crises within three years of such supercharged growth,” it reported.’
‘Those countries were Brazil, Ireland, Spain and Sweden. Aside from Brazil, which had a banking crisis in 1994, the others all experienced a crisis in 2008. All saw debt grow by 75 percent to 100 percent of GDP over five years. The IMF estimates that China’s domestic debt increased by 73 percent of GDP during the last five years.’
‘Earlier this year, a group of hydrogeologists from China warned that their nation’s campaign to decapitate mountains to create flat land and build cities could prove catastrophic. If all goes to plan, in just eight years the Chinese government will have transformed a remote, largely peasant-populated, mountain region into an industrial hub housing half a million citizens.’
‘Come 2020, Lanzhou Xinqu, or Lanzhou New Area, is expected to generate some 100 billion yuan – €12bn – in GDP. And this is just one – albeit the biggest – of five development projects to haul backward, rural hinterlands into an urban 21st century.’
‘During the last decade, the government has been shearing the tops off mountains and filling the valleys in-between to create a plateau on which to build as part of its ‘Go West’ strategy. In Lanzhou, as well as Chongqing, Shiyan, Yichan and Yan’an, tens of square kilometres of land have already been created by mountain levelling and much more is to follow.’
‘When finished, the Yan’an project will create 78.5 square kilometres of flat ground, doubling the area of the existing city while Lanzhou’s planned area exceeds 300 square kilometres.’
‘In April 2013 air pollution brought work on the Lanzhou project to a grinding halt. Yet only four weeks later, and despite incomplete assessments, construction resumed due to mounting costs to government and contractors.’
‘Dr Jan Zalasiewicz, a senior lecturer in paleobiology at the University of Leicester, UK, says. “A recent ‘back of a beermat’ calculation showed that about 500 billion tonnes of concrete have been made on Earth, which is about one kilo of concrete per square metre of the Earth’s surface, both land and sea.”
‘Dr Zalasiewicz points out that about half of this concrete has been made in the last 20 years, and the changes don’t stop here. “We have converted about 40 per cent of the land surface to agriculture and modified more than 90 per cent of our continental shelves via trawling,” he says. “As these thing happen, you get changes in the water cycle, the landscape, soils, associated chemical changes and so on. With these dynastic changes we are creating a new geology.”
‘Guizhou province’s investment in real estate development reached 105.71 billion yuan ($17.17 billion) during the first half of this year, growing by 23 percent over the same period last year, according to the latest data from the provincial Bureau of Statistics.’
‘Total area of buildings under construction in Guizhou covers 177.53 million sq meters, increasing by 28.5 percent from a year earlier. Its residential construction area occupies 122.35 million sq meters, growing by 24.6 percent and an area of home sales is 13.14 million sq meters, increasing by 10 percent.’
‘China Business News has analyzed the proportion of each province’s real estate development investment accounting for its GDP. The top 10 places are Hainan (36 percent), Guizhou (27 percent), Yunnan (25 percent), Chongqing (24 percent), Fujian (22 percent), Liaoning (21 percent), Ningxia (21 percent), Anhui (21 percent), Zhejiang (18 percent) and Sichuan (16 percent).’
‘As the real estate development investment is one pillar of investment in fixed assets, many provinces rely on developing real estate to stimulate their economy.’
If that’s not asking for environmental disaster, I don’t know what is. What an arrogant and stupid plan.
“…and all four faced banking crises within three years of such supercharged growth…”
I hereby predict ABQDan’s 7.5% annual GDP growth rate will crumble within three years.
“‘The past decade saw the establishment of an idiot-proof property market, one in which almost all market players could earn quick and handsome money by building houses,’ said Chen Aiming, CEO of Sincere Group, a large developer in southwestern China’s Chongqing Municipality.”
____________________________/
Oh, there were idiots in the property market all right. And what kind of market do you really have when a developer feels the need to call itself the “Sincere Group”?
“But the reopening of the lending taps means debt is an even bigger burden for the economy. With credit at 200% of GDP and average financing costs of roughly 7%, Chinese borrowers now need to generate cash-flow growth of 14% to cover their interest payments without eroding their profitability or being forced to borrow yet more. That is a tall order in an economy in which nominal growth is now running at 9%.
The upshot is that China’s credit-to-GDP level looks set to continue its steady drift upwards. Debt is a habit that, once formed, is hard to break.”
http://www.economist.com/blogs/freeexchange/2014/07/china-s-debt-gdp-level
Add to that 200% all the debt of the shadow banks and we think the number is much larger.
Another report from deep inside the Borg….
I am entertaining a few Chinese construction execs here in NYC next month….Huge company. They want to buy NYC sites, bring in the buildings and people in a crate, and build here. Colonization begins as the huge Chinese construction force needs some work to do.
Slave labor is portable…. Especially in NYC when the city will does not care about illegals, but acts like they care about Human Trafficking.
Here is the deal- NYC workers are old and try to claim injuries a lot- driving up costs. The Chinese workers are brought here and told that if they complain, their family will be killed in the “Old Country”.
FYI, The 4 largest NYC construction companies are owned by foreign companies. China Construction just bought Plaza last year to ditch the unions and keep the bonding.
Scary stuff. More updates later.
Nyc construction outfits aren’t that big.
You mean the Chinese will be spending their money to build excess, empty housing inventory in NYC? Super! Are these people aware that their buildings (brought in on crates) will be inspected before approval?
It’s not like there isn’t a ton of empty high rises in Manhattan, Bronx, Yonkers and Brooklyn. There’s a ton of them and they’re empty yet nobody seems to pay attention.
I suspect that they have already budgeted for the “inspections”. Should make for interesting 21st Century Tea Parties.
‘Housing Market Cools in the New York Suburbs’
‘Buyers Have Become Cautious After Last Year’s Strong Pace’
‘According to Global Financial Integrity, a non-profit group that traces illicit flows of capital, US$1.06-trillion left China between 2002 and 2011 despite tough currency controls. This is equivalent to China’s GDP in 2002 and roughly US$10-billion a month.’
‘Recently, a leaked report from China’s central bank estimated 18,000 officials and employees of state-owned enterprises pilfered US$123-billion and fled to the U.S., Canada, Australia and the Netherlands. Recouping these assets will be on the agenda, but efforts must focus on removing the culprits at home to create a meritocracy and deploy the nation’s capital to build wealth, not to build political buildings or bridges that line politicians’ pockets.’
‘In 18 months, nearly 250,000 officials and others in governments and state-owned enterprises have been held for detention or charged. Some 70 have died or committed suicide while in custody.’
‘Investigators are unraveling schemes that embezzle, launder and export bribes, kickbacks or the proceeds of crime. Some involve bribing a bank officer to take a deposit then wire funds offshore. Another option is to drive truckloads of cash into the backdoor of friendly casinos in Macao where the cash is blended then paid out, minus a fee, as gambling winnings in another currency.’
‘More devious schemes by big shots have moved tens of billions offshore without handling cash or involving banks. For instance, money managers are paid inflated fees to invest Chinese corporate funds abroad. The catch is that half of the fees are paid out to shell companies owned secretly by Chinese officials or paid out to buy them condos or art.’
‘Other tactics involve bribing officials or executives by selling assets at a loss so they can pocket immediate profits; overpaying for offshore assets in return for kickbacks or wiring cash to “fronts” owned by officials or their children who wash the bribes as though they were legitimate income.’
‘Whatever the source, Canada must stop being naïve and aiding and abetting such crimes. In Canada, there are no restrictions or disclosure requirements with the result that Toronto and Vancouver housing costs have been driven up artificially due to frenzied buying by anonymous foreigners. This is why Toronto has 130 high-rise residential projects or as many as New York City with dramatically more people and immigrant arrivals.’