China Is Orchestrating A 30% Crash In The Property Market

Tyler Durden's picture

Something curious was noted this morning on CNBC Europe: namely a reference to an article in the Shanghai Financial News, according to which China is quietly (or not so quietly) trying to orchestrate a 30% drop in real estate prices, in the form of a "Thunder attack" which combines increased purchase costs, property taxes as well as the rise in interest rates. If proven true, this is a major flashing red sign of just how out of control inflation, especially property and real estate, is in China, and that future CPI readings (not the official Politburo number, but that which people actually have to live with) will be getting progressively worse. Also, for the government to step in with such a drastic measure, it must mean that the discontent on the ground must be approaching a fever pitch.

From Shanghai Daily News (apologies for the Google translation from simplified Han - we ask any native readers to provide a better translation):

Regulation has been to attack the third round of first-tier cities real estate prices down 30%

Thunder attack the third round of real estate regulation, the rapid combination of boxing, so property prices forced counterattack, a few days could not proud of the real estate business and speculators by surprise. This time, a property "hot pot" of the "lid" was covered up.

Increase purchase cost, the purchase of, property tax, this three-pronged approach, if implemented in place, the actual interest rate has been through administrative restrictions and basically blocked the tax price of the property market investment (speculative) demand.

That property prices continue to rise, "lid" was tightly closed out. At the same time, "further implementation of local government" and "the construction of housing projects to increase security efforts", the attempt to increase the supply of low-rent housing on the market, "pot" to root of the problem.

After this shot of a combination of boxing, I believe that covers "lid" will directly effect. Property market turnover will be greatly reduced, as the CPI is likely to continue to promote further interest rate rise, real estate holding costs will continue to increase, investors who own multiple sets of housing will withstand the pressure to sell vacuum, once the panic selling a conservative estimate, prices have to appear about 30% pullback.

New "state of eight" and the property tax was intended to curb property speculation, if the effectiveness of control there, holding costs sharply, but more substantial price correction, then the past 10 years, the emergence of many hundreds of millions of Chinese cities, million "property rich" will be their colors.

It is true that the local government to increase efforts in building affordable housing projects, the author is not optimistic, because the event of a fall in property prices, local government finance will decrease the land, local government expenditure in the expanding case, expect them to spend more money for housing support, which is obviously unrealistic. Only a few strong ability to govern the city, it is anticipated to increase in 2011 the so-called efforts to protect the room is still on paper.

In the new "National Eight" and after the introduction of property taxes, house prices in 2011 is yes, then the next problem is that people are most concerned about - how much will fall?

Unfortunately, house prices will fall much, not primarily controlled by the Chinese, how much house prices will fall, the key to CPI (an important factor in the decision to raise interest rates); the CPI mainly agricultural products (16.70, -0.40, -2.34%), price determination; the prices of agricultural products mainly by the United States or U.S. agricultural futures markets and Wall Street's financial oligarchy decision. Despite the gains in agricultural products in 2011 has been crazy, but the international investment bank is still talking up the recent agricultural products, while vigorously pushing up oil prices - fertilizer and other major agricultural products are produced from petroleum.

That the future we may see the prices of agricultural products continued eruption scenario. The logic is this: abnormal weather and natural disasters (such as the present drought in north China) - International investment bank pushed up oil prices - prices of fertilizer and other agricultural materials - Chinese farm products are rigid gap - the international hot money frenzied speculation - agricultural prices continue to soar - the CPI rose to more than 10%, mortgage interest rates to 12% or more - more and more Chinese who can not afford the interest stuck with speculation - have to sell from the start of a small amount of falling house prices, but it is difficult sell - a lot of panic selling, housing prices fell.

Conclude that China's rate of falling house prices, the petroleum and agricultural price rises in the decision.

In addition, the decision to declines in property prices in China, there are two important factors:

First, China's monetary tightening efforts, a variety of information from the current point of view, not in the short term reversal of contraction. Recently, the central bank governor Zhou Xiaochuan also said that despite the deposit reserve rate has been high, but the future will still use the tools and the central voting issue to hedge liquidity. Second, the decision on whether a large-scale withdrawal of international hot money in China.

Overall, prices in China for the future, I am not optimistic. Those who still holds a lot of investment houses were in big trouble, the property market and, unlike stocks, transaction costs are very high, sell when up, or when the shot is very difficult to do. Of course, a few brave people can ton output capacity, but most will put the lid on, as has been in the "frog" in the continued heating, it had lost the strength to flee.

There are a lot of trouble holding the same land, but cash flow poor real estate agency in the next couple of years than they are likely to encounter more challenges in 2008. Dragged by the property market, the stock market is difficult to be optimistic.

The coming year, the Chinese economy and Chinese enterprises will face very serious challenges, the extent to less than 2008, the appreciation of the RMB, high resource prices, high agricultural prices, labor costs, etc., the cost of increasing rigidity in China; The high reserve ratio, high interest rates, falling house prices, stock prices fell, and so will become scarce liquidity. In this backdrop, Chinese companies are still profitable if it must have extraordinary ability.

h/t LDT


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Sudden Debt's picture

Would America have done the same?


cossack55's picture

NFW. Its all about the (bank) bonuses.  Not economic fundamentals or even reality.  Let the people eat shit and die.  Got's to luv good ol' Malthus.

jus_lite_reading's picture

Hey CHINA! How's that "mutually assured destruction" working out for ya? Do you still believe the scum bags? I told you, the US/EU/UK complex has been playing you... The worst offender has been the EU. They have done the most damage, followed by the Bernank.

financeguru500's picture

Lol, and China thought they had the ace up their sleeves with the amount of T-bills they were holding. China's best bet at this point would be to halt exports to the U.S. entirely claiming that U.S. has misused the leadership position of having the reserve currency. Then continue to export to countries that China actually needs imports from such as oil producing countries and agricultural/commodity countries.

Anything short of this will spell economic disaster for China as the U.S. exports its inflation to them.

jus_lite_reading's picture

Indeed. China has recently (within the past 7-8 years) had this cocky attitude toward the US/EU/UK. They felt their "model" of authority (communism with a twist) was finally succeeding and the US was losing- after all, the US was borrowing money from THEM.

What you says is so incredibly accurate and my point except that at this point in time, I'd have to truly pass the blame entirely on the EU first, then the US second for covering over the EU's transgressions. China should be looking at the EU for their inflation and the US for allowing/aiding it to happen.

financeguru500's picture

That is really interesting. I hadn't thought about how the EU plays into things until now. What do you think the role of the U.S. has been in regards to keeping the EU afloat?

Jack H Barnes's picture

In 2008, the US provided Europe with Trillions, yes TRILLIONS in liquidity provisions.  Europe is an expensive call girl.  She looks great, dresses expensive, and has a liquidity problem bigger than most coke heads have a cash flow problem.

China somehow believed that in one generation they learned more about capitalism, than everyone else. 

This is going to end ugly...

financeguru500's picture

Thanks for the explanation Jack.


So basically if we (the U.S.) go down, were taking the EU with us. Personally I think we will see things get bad in China before they do here.

jus_lite_reading's picture

The US never liked the idea of another world power but they went with it and came to the same bullshit conclusion- mutually assured destruction would occur if the Fed did not provide the EU with untold TRILLIONS OF DOLLARS (ranges from $4T-20TRILLION) from the period of 2008 to now. No one knows for sure the amount but I can assure you, China and developing nations will feel the wrath of the EU's exported inflation.


Indeed, the EU is first to blame, then the US for aiding and making it worse.

sschu's picture

We have been begging China to let their currency float and they have been reluctant to do so.  They are so invested in their mercantilist export model that they have refused to see what was heading right at them, debasement of the USD and therefore inflation at home in China. 

Would it not make sense for them to increase their buying power by allowing their currency to appreciate?  Does the rest of the world really have the capacity to make all the stuff they sell?  Are they risking huge social unrest because their food and oil are priced in dollars and such a high percentage of their middle class income is used to pay for food?

Maybe I am missing something, but wouldn't be in their best long-term interests to hand the inflation back to their international customers?

I agree with the poster below, they are being worked by the masters.


Sudden Debt's picture

Just imagine how the rest of the world markets would react on such a move.

That could blowtorch my silver investment!

jus_lite_reading's picture

ZH has been talking about this for a long time now but it's finally here-


An AMAZING fact: The Federal bailout is more than the cost of the First World War, the Second World War, the Korean War, the Vietnam War, Marshall Plan,  the New Deal, the Invasion of Iraq, and landing on the moon COMBINED!

lesterbegood's picture

Actually, the above-mentioned article just scratches the surface of the BIGGEST SCAM IN THE HISTORY OF CIVILIZATION.

Wanna go much deeper into the rabbit hole?

jus_lite_reading's picture

I've done enough research to know the whole world is going to hell in a handbasket in a few months if not weeks. The Bernank just confirmed it today.

Buck Johnson's picture

I agree with you, I think this year is going to be crazy.  You can't keep a hot market like this going for to long without it burning out completely, especially with close to 15 Trillion dollars in hot money.

Dicite justitiam's picture

wow, barefoot is a bit over the top if you ask me.

sschu's picture

Good stuff, thanks.  I have read (and will try to locate the link) where some think the Fed/USG created as much as $20 Trillion in late 2008 to avert a total financial collapse.  This is the real canary in the coal mine.  Who did it, how did it happen, under what authority and where are the $$ now? 

This cannot be disclosed as some very high up people would end up swing from trees or face to face with Madam Dufarge.  Do you think Hank Paulson has bought one of those luxury submarines and has a plan to bug out in literally minutes?  :-)


max2205's picture

You mean China price per sq ft of 100,000 is overvalued. Damn

Sudden Debt's picture

But a real estate crash in China wouldn't affect Ying and Yang Doe that much.

Wealth is more concentrated over there.

But a lot of common people do trade stocks in China, and question is how big is the influence of the real estate market in the Chinese stock market.

And if it all would crash....




Popo's picture

When the average annual income is $4000?  Nah...  Nothing's wrong with that. 

Michael's picture

Are you trying to tell me the prices of those 64 million vacant properties in China are going to crash? Say it isn't so.

jus_lite_reading's picture

The irony of this situation is they're still building like there is no tomorrow. I suppose they plan to fill those empty buildings with the bodies of dead rioters?

Iam_Silverman's picture

"I suppose they plan to fill those empty buildings with the bodies of dead rioters?"

Actually, since they have offshored all of the jobs here in America, you have to move to find employment.  They are just preparing for the boom in new Western immigrants looking for work.

Look on the bright side - with those empty building suddenly being filled with people, who will need decor, Harry Wanger's business will surely take off!

jus_lite_reading's picture

Ironic that Harry imports all of his toxic home furnishings from China, but he may actually find a larger market in China... is Harry in the business of importing plastic rice as well?

Iam_Silverman's picture

He says that demand for his (imported) Hopium has trebled.  Now, maybe he can cultivate a regional market closer to the source (China).

A Man without Qualities's picture

Keep an eye out for dodgy local politicians selling their portfolios back the the same SOEs they bought for in the first place, leaving the banks with a bunch of toxic loans and a government guarantee that cannot be enforced.  This could get ugly.  I cannot think of a time when anyone has been able to gently deflate a bubble...

three chord sloth's picture

Ah yes... gently deflating a bubble. That ever-elusive soft landing. It's the only thing rarer than unicorns.

SashaBelov's picture

Maybe they are also orchestrating a 30% crash in US bond market? Or 30% drop in S&P? :)

Sudden Debt's picture



TAO : Guggenheim China Real Estate

CRIC : China Real Estate Information Corporation


chinaguy's picture

All of my Chinese friends, who have made literally millions on the RE bubble, are very sceptical about the introduction of a property tax...I'm not saying it's not going to happen, just that I'll believe it when I see it. 

blind squirrel's picture

Huh?  Property taxes already started on Jan.28 this year in Shanghai and Chongqing.

chinaguy's picture

This is just a "trial" and only in these two remains to be seen if this "law" is enforceable....In china a "law" is only a "law" if it is enforceable.

Ahmeexnal's picture

So is anyone willing to defy in  the Tax tank, like that lone protester in Tiananmen?


hugovanderbubble's picture

Short Hong Kong Reits.....

AUD's picture

So on one hand the Chinese government wants to 'attack' inflation but on the other wants to devalue by bidding for USD denominated debt? International reserve assets have increased substantially in the last few months with a concurrent fall in US High Yield bond spreads & even a leveling of the USD gold price.

The Chinese have all the 'reserves' but maybe it's just coincidence.

spanish inquisition's picture

If they wanted to slow it down, why not add no block purchases and 90 day manditory closings. I doubt the money will go anywhere else, its mostly debt and held for a few months before being resold.


TooBearish's picture

I have 100% confidence the PBoC will be able to control 15 minutes

Banana B-52 Ben

gwar5's picture

Other China:

China announced a strategic reserve of their Rare Earth metals, state control over more mines.

Hoarding: 39K tonnes storage. 35% reduction in export quotas. Has 95% of the market.


China creates rare earth strategic reserves: report - February 9, 2011


Mad Max: Get your neodymium magnets to power your post-American junkyard windmills now.



Jason T's picture

Just manipulate that RMB to 2 to 1 US$.  Export all that inflation to the US and make US the peasenty who can't afford chinese made goods while the Chinese drive GMs like its going out of style.



Alexmai's picture

My relatives live in China, they said the new policy on real estate makes people very diffcult to buy/sell a house. Not only there are incredible transaction cost, but the prevous discount for first home buyers are all gone. However, the prices of house still stay subborn high despite these policy. I fear that Chinses is already can't control the real estate bubble. Besides, inflation is unblievebly high. The price of foods go up almost every week! Going out for a dinner at any restaurant is almost would cost one's entire monthly income. The innocent people are now paying for the cost of speculation caused by the housing investors. The living condition is devastating. People are not talking about the lifestyle anymore.

The banks in china lent out trillions of RMB since the 2008 crisis. I believe it explains a little who is buying the stocks. the interest rate in china will soon to jump by 1 or 2 percent. People in china are saying that "even interest rate shoot up to 20%, it will take at least 1 year for price to start going down. " That's what I heard from my relatives. My hometown is in Nanning, China. Hope it helps.

synonym's picture

Interesting. Always useful to get a view from those on the ground. Thanks Alex

Quinvarius's picture

You can't force the Chinese to sell as long as they can afford to hold.

blind squirrel's picture

@Alexmai.  That's my understanding, too.  Government measures only seem to reduce sales volume - they don't have too much effect on price decline.  I take this headline with a grain of salt.

MonsterBox's picture

Think any of our QE1 and QE2 cash is indirectly fueling this Chinese RE bubble?

More, do the Chinese recognize we're responsible with our principle export product being inflation?

And better yet, "Wadda ya gonna do about, chink?"  (no offense, of course)

Saxxon's picture

The typical naive, government-trusting, childlike white American does not realize the extent of the gangsterism and corruption in the PRC; they also do not realize how much money is frothing around among the higher-ups.  I could a tale unfold but will save bytes here.

Now that money will froth out of RE.  Whether or not they succeed in a 30% drop (sounds absurd), the top is being put in.  Where else will the money go, is the question.

Iam_Silverman's picture

"Where else will the money go, is the question."



A Man without Qualities's picture

When an debt fuelled asset bubble collapses, the "money" simply vanishes....

Iam_Silverman's picture

"When an debt fuelled asset bubble collapses, the "money" simply vanishes..."

Except if they leveraged that asset in order to preserve its value.

Consider taking out a HELOC or cash-out refi in 2006-2007 in order to purchase PM's.  Then, default on the HELOC and/or Primary Mortgage and sit on the PM's.  When the crisis blows over, convert the PM's back into RE, albeit at a lower square footage, but unencumbered none the less.

Can't/won't happen you say?  I've seen it first hand.

hardcleareye's picture

How about into purchasing  food?

RagnarDanneskjold's picture

The property tax is about creating a stable source of income for the government. It's a tax that will allow the local governments to stop relying on land sales and is part of the larger goal of expanding the domestic economy? deflating the real estate bubble is not the intention.

Over Spring Festival I noticed literally dozens of high rises being built in several cities only a few hours south of Beijing, this is part of Hebei province's big 3-year makeover that started in 2008 (pre-crisis). As for the drought, I drove over a large river in one small city, it was bone dry. According to the news, there has only been 2mm of precipitation since November. In Beijing, I have not seen any precipitation since late October.