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Will Fed "Taper" Talk Crush Chinese Property Prices?

Tyler Durden's picture




 

When the Fed extended its guidance for extremely low rates to 2014 and later, none of the Chinese government's measures to deter property speculation could deter 'homebuyers' from bidding up prices. However, as the chart below shows, the disconnect between home prices (extreme highs) and home sales (near lows) has never been greater and with the Chinese looking to further control speculation at the same time as a Fed that is increasingly jawboning a slowing to its easy money policy, the prices of Hong Kong property has begun to drop in recent weeks. As Bloomberg notes, prices have fallen 4.2% from a record reached in mid-March, compared with a 77% contraction in sales from their post-global financial crisis peak in 2010.  The prices of property is explicitly deterring the 'urban dream' that we explained here, but any sustained drop in property prices (given the shadow lending and collateralization this bubble represents) leaves China once again between a bubble-pricking rock and an inflationary (social unrest harboring) hard place.

The Hong Kong dollar’s peg to the U.S. counterpart has kept borrowing costs in the city at near-record lows, underpinning a 109% gain in home prices since the beginning of 2009, even as the government imposed several property curbs to cool demand.

 

Hong Kong property prices relative to sales...

 

Charts: Bloomberg

 

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Wed, 05/15/2013 - 21:04 | 3567439 pudding
pudding's picture

Good-bye Hong Kong. We love you.

Wed, 05/15/2013 - 22:22 | 3567650 Gene8696
Gene8696's picture

China Ghost Towns
Fifteen years ago, China changed its policy so people could buy their own homes. Real-estate investments boomed, and new cities began popping up each year, many inspired by western design and mimicking iconic locales like Paris and lower Manhattan. The problem is: people don't live here. One ghost city in Inner Mongolia, built to house one million people, is now an empty shell of unoccupied skyscrapers and abandoned construction sites. VICE checks out this and other urban failures to figure out how China's preoccupation with growing its GNP turned "supply and demand" into "build now, sell later."

Good Story on HBO Vice
http://m.hbo.com/vice_eps/39398/

Wed, 05/15/2013 - 23:43 | 3567839 Say What Again
Say What Again's picture

I just took a look at the Fed's POMO site, and noticed that this Friday is going to be a big day for them.

Fri, May 17, 2013
Outright Treasury Coupon Purchases
Maturity Range:     02/28/2018 - 02/15/2019
Expected Purchase:  $4.75 - $5.75 billion

Over $5 Billion!!!  That ought to be good for 300 points on the DOW, and 40 points on the SP500.  If we get any news (good or bad) that should juice it even moar.

Wed, 05/15/2013 - 21:09 | 3567457 mick_richfield
mick_richfield's picture

The thing is,

the Tyler Durden I knew would not say anything like
"I'm in Switzerland and I have to abide by their laws."

He would not say "I don't have any other choice."

He would not start pulling punches because
people told him he had to.

The Tyler Durden I knew would find a way to get around
pansy bullshit like that.

I still remember when he said
"Hit me as hard as you can."
And I did.

So.

I'll be seeing you guys around the intertubes.
Fight the good fights however you can,
and as long as you can.

If, in times to come, anybody ever asks me if I knew
who Tyler Durden was,
I will tell them:
     "I was."

I will see you again,
when we are all like flames
before the sunrise.

----------------------------- Mick .

Wed, 05/15/2013 - 21:55 | 3567567 ACP
ACP's picture

Seriously.

They need to get out in front of this or people are going to think something more insidious is going on and readership will tank. Just blasting out a post laying it all out on the table would be better than avoiding the question. I don't agree with everything here, but this is an important blog, and I'd hate to see it sputter out.

 

Wed, 05/15/2013 - 23:55 | 3567875 WallowaMountainMan
WallowaMountainMan's picture

a relatively new person to this sight, my hunch is there is a critical mass of blog-o-sphere eruption that is an inevitablility for the great sites....i happen to have been around a few of them over time in a variety of subjects. and then get found.

no news there.

those who think insidious simply fall by the wayside and miss the great articles when they arise.

the presence of great articles will keep the tradition going..

zh will continue as the nugget inside zh 2.0

 

Wed, 05/15/2013 - 21:11 | 3567458 Major Major Major
Major Major Major's picture

I am not sure why, but this quote "China once again between a bubble-pricking rock and an inflationary (social unrest harboring) hard place" reminds me of this: http://www.zerohedge.com/news/2013-05-10/friday-humor-overcompensating-china

 

Wed, 05/15/2013 - 21:14 | 3567469 LiberalConstitu...
LiberalConstitutionalist's picture

I feel like "(Country X) finds itself between a (Insert Looming Fiscal Crisis) rock, and a (Insert Looming Social Crisis) hardplace." is the new Tyler Durden go-to line on 98% of these recent posts.

Wed, 05/15/2013 - 21:23 | 3567491 Major Major Major
Major Major Major's picture

Wooosh!  That is the sound of my comment flying way above your head, buddy.  Why did you leave out the prick part of the quote?

Wed, 05/15/2013 - 21:38 | 3567527 LiberalConstitu...
LiberalConstitutionalist's picture

I'm commenting on Tyler's repetitive use of the same line over and over again, a phallic joke is hardly over anyone's head.

Wed, 05/15/2013 - 21:27 | 3567496 Fuku Ben
Fuku Ben's picture

That 98% is just the realization of a global convergence. Everyone's in the same boat and a tsunami is about to hit 

There won't be any need for financials soon once the NWO consolidates everything into a One World Currency. They're just behind schedule.

http://3.bp.blogspot.com/_otfwl2zc6Qc/SljQtzxVupI/AAAAAAAAKmc/MZN7b_oWK8Q/s1600-h/coin.jpg

The other 2% of posts are sex related

The new Tylers are doing a slow transition into a porn site

Wed, 05/15/2013 - 21:33 | 3567513 Quinvarius
Quinvarius's picture

When their shit hits the fan, they are going to blame somebody.  I wouldn't want to be Japan.  I have seen a lot of videos about China's military lately.  They are very advanced.  Very advanced.

Wed, 05/15/2013 - 22:22 | 3567607 Element
Element's picture

Super-power aspirant, or at least aspiring dominant regional power in Asia. The anti-ship missile that hit an Israeli corvette off the coast of Beirut, in 2006, was apparently a Chinese C802, not an Iranian missile.

(1) Chinese missiles are being surreptitiously exported

(2) Non-State Hezbollah has received advanced Chinese missiles

"On 14 July 2006, the IAF bombed Nasrallah's offices in Beirut.[121] Nasrallah addressed Israel, saying “You wanted an open war, and we are heading for an open war. We are ready for it.”[122] Hezbollah attacked the INS Hanit, an Israeli Navy Sa'ar 5-class corvette off the coast of Lebanon with a what was believed to be a radar-guided C-802 anti-ship missile."

http://en.wikipedia.org/wiki/2006_Lebanon_War
http://en.wikipedia.org/wiki/C-802

Even the older Chinese equipment is effective.

Thu, 05/16/2013 - 00:45 | 3567957 chump666
chump666's picture

I think China is preparing for war anyday now, I am looking at the AUD which is such a good proxy for China/Asia.  It's sell out of Asia.

Japan is poking the sleeping dragon

http://www.niticentral.com/2013/05/15/japanese-mayor-defends-wartime-pol...

"China’s Foreign Ministry criticised the mayor’s comments and saw them as further evidence of a rightward drift in Japanese politics under Prime Minister Shinzo Abe.

“We are appalled and indignant about the Japanese politician’s comments boldly challenging humanity and historical justice,” Foreign Ministry spokesman Hong Lei said at a daily media briefing. “The way they treat the past will determine the way Japan walks toward the future. On what choice Japan will make, the Asian neighbours and the international community will wait and see.”

Asked about a photo of Abe posing in a fighter jet with the number 731 — the number of a notorious, secret Japanese unit that performed chemical and biological experiments on Chinese in World War II — Hong again urged Japan not to whitewash history so as to improve relations with countries that suffered under Japanese occupation.

“There is a mountain of definitive iron-hard evidence for the crimes they committed in the Second World War. We hope Japan will face and contemplate their history of aggression and treat it correctly,” Hong said.

Abe posed, thumbs up, in the aircraft during a weekend visit to northeastern Japan."

Thu, 05/16/2013 - 02:18 | 3568023 Element
Element's picture

I try not to think about China and Japan getting into it, it would be a new low for humanity.

If China feels Strategically threatened, Russia is in a Strategic Alliance with them.

And you can bet DPRK would side with China and Russia - their old best buddies.

That's three nuclear armed states facing Japan, which has the world's largest stockpile of plutonium.

And then there's Taiwan.

Do you think China would miss a combat 'crisis' opportunity, with Japan, to bring Taiwan back into its grip?

And then there's DPRK, who are itching to try and re-unite the Korean Peninsula.

What would the US do in such a situation/challenge? 

Nothing good, that's for sure.

And it would suck-in everyone else.

Thu, 05/16/2013 - 03:07 | 3568055 e-recep
e-recep's picture

"I have seen a lot of videos about China's military lately.  They are very advanced.  Very advanced."


I am glad to hear that. I am sick and tired of a unipolar world where the US is the sole bully.

Wed, 05/15/2013 - 21:52 | 3567562 chump666
chump666's picture

The Fed is good for two things a stock bubble and creating war tensions (oil inflation):

http://www.guardian.co.uk/world/2013/may/15/china-okinawa-dispute-japan-...

 

Wed, 05/15/2013 - 22:04 | 3567593 bugs_
bugs_'s picture

I'm not ashamed to admit that all this "taper talk" makes me almost as hot as "deflation talk"!

Wed, 05/15/2013 - 22:21 | 3567647 SeeNoEvil
SeeNoEvil's picture

#btfd to taper or not to taper Bernanke has no choice who's going buy that mountain of paper No one and once there's a sell signal evey one will front run on the way down not a SnowBall s chance in hell of end to QE

Wed, 05/15/2013 - 22:24 | 3567656 chindit13
chindit13's picture

Back in the days when I practiced the dark arts for a living, I did a stint in HK.  I could understand the most arcane workings of just about any market, but never could I understand Hong Kong real estate.  I lived for a time in an apartment that afforded me a clear view---as clear as Hong Kong allows, which is to say about as far as a gwai lo's nose stretches out---of upwards of 20,000 apartments that rented for a minimum of US$8000 per month.  My own went for $20000, but that didn't come from my pocket.  I knew there were not that many wildly profitable businesses there, nor were there many people fortunate enough to earn at a clip where $8-40K per month for shelter wouldn't fall somewhere between excruciatingly painful and outright fatal.  Yet somehow the apartments got filled, and their inhabitants helped produce that galaxy of stars one could see each night if he took the 26 cent HK Ferry ride to the other side and looked south.

The best explanation I got---at least it began to make sense---was that most were two income households who supplemented their take with "winnings" from the stock market, all of which still required them to pay 75% of monthly gross on shelter.  Hong Kong's 15% tax rate helped gross kind of approximate net, as least relative to a country like Sweden.

Most residents, if not already owners, were shut out of the game.  Of six or seven million citizens, maybe a hundred thousand or two lived well, which is also relative, since nobody really lives well in Hong Kong.  They just act like they do.  The government, which owned a good deal of land, would occasionally drip another postage stamp-sized piece out on to the market, or grant approval for one tycoon to landfill in front of another tycoon's already sold-out soon-to-be-former "waterfront" project, allowing Li Ka Shing, Lee Shau Kee, or the Kwok brothers to make another billion...risk free.  It truly was risk free, as proven in 1997, when Li Ka Shing got a refund from the government for a property he had won at auction, arguing that the Asian Financial Crisis was unforeseeable and had cut into his expected profit.  That's Asian TBTF.

And what do these respected tycoons do with the land?  Built absolute junk.  Pure trash.  Embarrassingly bad, or at least it would be embarrassing if there was even an iota of pride in product, and not profit, produced.  Tycoons get approved for twenty floors, go about building thirty, and each floor has a gaggle of two or three bedroom, 400 square foot "luxury" residences, "for those select few who have finally made it".  Name it "Beverly Hills Shores" or "Golden Double Happiness Savoy", construct a gauche Coat-of-Arms as its logo, and prospective buyers, viewing a roped-off but completed model residence, will not notice that the furniture has been scaled down to midget size to make the place look more spacious.  Also lost in the pie-in-the-polluted-sky dreams of the wannabe landed gentry was the fact that local practice allows space to be measured in the circumference, meaning walls and closets are included in that 400 square feet, in addition to the owners theoretical share of building common space such as the building lobby and fire exits. Oh yes, it also includes the 20 square foot Filipina Maid's room.

In the end I suppose it was the trickle, or flood if needed, of immigrants from the other of the Two Systems, One Country that kept a bid under things, and I have no doubt the aforementioned tycoons had some say as to how wide the door should be opened.

It seems that now, even in the land of 1.3 billion dreams, the door cannot be opened wide enough.  At least for now the limit has been reached.  Folks will have to lie back on the bed in their 48 square foot Master Bedroom with en suite combo shower-sink, and just enjoy the cacophony of ten thousand hydraulic jacks, wielded by a recent illegal from Fujian, obliterating a former dream and hoping to construct another.

Thu, 05/16/2013 - 08:57 | 3568460 aka_ces
aka_ces's picture

Always enjoy your posts chindit13, and this one the best yet.  Please continue posting.

Wed, 05/15/2013 - 22:26 | 3567661 Son of Loki
Son of Loki's picture
Hong Kong Home Prices to Drop as Much as 25%, Bernstein Says


 

http://www.bloomberg.com/news/2013-04-22/hong-kong-home-prices-to-declin...

 

...and....

 

Hong Kong Homes Face 20% Price Drop as Banks Raise Rates


 

http://www.bloomberg.com/news/2013-03-21/hong-kong-homes-face-20-price-d...

 

HK, like so many other places are on the verge of a massive house market collapse when the hot money slows or for some, when the printing presses start to sputter.....

Wed, 05/15/2013 - 23:19 | 3567796 W T F II
W T F II's picture

China is a train-wreck...Hong Kong is the disaster site.

Thu, 05/16/2013 - 00:44 | 3567954 TGR
TGR's picture

It's somewhat innacurate to infer, as this article does, the Hong Kong and mainland Chinese property markets are one and the same. Hong Kong has vastly different dynamics to China itself, and both have seperate government systems, legal systems, monetary systems, tax systems, and not to mention different regulations when it comes to property.

What the Hong Kong government decides in regard to the property market there has zero effect on property prices or regulations in mainland China. Likewise, measures taken by the Chinese government on the mainland are not effective for HK or directed at there. The two different property markets have never effectively mirrored each other.

Hong Kong's property market has been renowned for its volatility, mainland China's - to date anyhow - has not.

Thu, 05/16/2013 - 03:20 | 3568063 e-recep
e-recep's picture

"Hong Kong's property market has been renowned for its volatility"

that's because the hong kong dollar is strictly pegged to the us dollar.

Thu, 05/16/2013 - 01:03 | 3567967 chump666
Thu, 05/16/2013 - 00:50 | 3567968 Jake88
Jake88's picture

ZH writers would benefit from remedial English classes.

Thu, 05/16/2013 - 07:14 | 3568210 nicoacademia
nicoacademia's picture

if a war kicks out. the yen is just gonna get pummeled into banana notes circa 1945.

Thu, 05/16/2013 - 08:37 | 3568375 Papasmurf
Papasmurf's picture

Fed taper, lol?   They can't taper or things collapse.  Nothing to see here, move along. Preemptive strike on gold this week in preparation for more POMO that's coming.

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