The Music Just Ended: "Wealthy" Chinese Are Liquidating Offshore Luxury Homes In Scramble For Cash

Tyler Durden's picture

One of the primary drivers of the real estate bubble in the past several years, particularly in the ultra-luxury segment, were megawealthy Chinese buyers, seeking to park their cash into the safety of offshore real estate where it was deemed inaccessible to mainland regulators and overseers, tracking just where the Chinese record credit bubble would end up. Some, such as us, called it "hot money laundering", and together with foreclosure stuffing and institutional flipping (of rental units and otherwise), we said this was the third leg of the recent US housing bubble. However, while the impact of Chinese buying in the US has been tangible, it has paled in comparison with the epic Chinese buying frenzy in other offshore metropolitan centers like London and Hong Kong. This is understandable: after all as Chuck Prince famously said in 2007, just before the first US mega-bubble burst, "as long as the music is playing, you've got to get up and dance." In China, the music just ended.

But more so than mere analyses which speculate on the true state of the Chinese record credit-fueled economy, such as the one we posted earlier today in which Morgan Stanley noted that China's "Minsky Moment" has finally arrived, we now can judge them by their actions.

And sure enough, it didn't take long before the debris from China's sharp, sudden attempt to "realign" its runaway credit bubble, including the first ever corporate bond default earlier this month, floated right back to the surface.

Presenting Exhibit A:

Cash-strapped Chinese are scrambling to sell their luxury homes in Hong Kong, and some are knocking up to a fifth off the price for a quick sale, as a liquidity crunch looms on the mainland.

Said otherwise, what goes up is now rapidly coming down.

Wealthy Chinese were blamed for pushing up property prices in the former British territory, where they accounted for 43 percent of new luxury home sales in the third quarter of 2012, before a tax hike on foreign buyers was announced.

 

The rush to sell coincides with a forecast 10 percent drop in property prices this year as the tax increase and rising borrowing costs cool demand. At the same time, credit conditions in China have tightened. Earlier this week, the looming bankruptcy of a Chinese property developer owing 3.5 billion yuan ($565.25 million) heightened concerns that financial risk was spreading.

 

"Some of the mainland sellers have liquidity issues - say, their companies in China have some difficulties - so they sold the houses to get cash," said Norton Ng, account manager at a Centaline Property real estate office close to the China border, where luxury houses costing up to HK$30 million ($3.9 million) have been popular with mainland buyers.

Alas, as the recent events in China, chronicled in minute detail here have revealed, the "liquidity issues" of the mainland sellers are about to go from bad to much worse. As for Hong Kong, it may have been last said so long ago nobody even remembers the origins of the word but, suddenly, it is now a seller's market:

Property agents said mainland Chinese own close to a third of the existing homes that are now for sale in Hong Kong - up 20 percent from a year ago. Many are offering discounts of 5-10 percent below the market average - and in some cases as much as 20 percent - to make a quick sale, property agents and analysts said.

Also known as a liquidation. And like every game theoretical outcome, he who defects first, or in this case sells, first, sells best. In fact, since panicked selling will only beget more selling, watch as prices suddenly plunge in what was until recently one of the most overvalued property markets in the world. And with prices still at nosebleed levels, not even BlackRock would be able to be a large enough bid to absorb all the slamming offers as suddenly everyone rushes to cash out.

The biggest irony: after creating ghost towns at home, the Chinese "uber wealthy" army is doing so abroad.

In a Hong Kong housing development called Valais, about 10 minutes drive from the Chinese border, real estate agents said that between a quarter and a half of the 330 houses are now on sale. At the development's frenzied debut in 2010, a third of the HK$30-HK$66 million units were sold on the first day, with nearly half going to mainland China buyers.

 

Dubbed a "ghost town" by local media, the development built by the city's largest developer, Sun Hung Kai Properties Ltd (0016.HK), is one of many estates in Hong Kong where agents are seeing an increasing number of Chinese eager to sell.

 

"Many mainland buyers bought lots of properties in Hong Kong when the market was red-hot three years ago," said Joseph Tsang, managing director at Jones Lang LaSalle. "But now they want to cash in as liquidity is quite tight in the mainland."

Perhaps our post from yesterday chronicling the crash of the Chinese property developer market was on to something. And of course, as also described in detail, should China's Zhejiang Xingrun not be bailed out, as the PBOC sternly refuted it would do on Weibo, watch as the intermediary firms themselves shutter all credit, and bring the Chinese property market, both domestic and foreign, to a grinding halt (something he highlighted in our chart of the day).

Meanwhile, the selling rush is on.

In a nearby development called The Green - developed by China Overseas Land & Investment (0688.HK) - about one-fifth of the houses delivered at the start of this year are up for sale. More than half of the units, bought for between HK$18 million and HK$60 million, were snapped up by mainland Chinese in 2012.

Because so much changes in just over a year.

"Some banks were chasing them (Chinese landlords) for money, so they need to move some cash back to the mainland," said Ricky Poon, executive director of residential sales at Colliers International. "They're under greater pressure from banks, so they're cutting prices."

 

In West Kowloon district, an area where mainland Chinese bought up close to a quarter of the apartments in many newly-developed estates, some Chinese landlords are offering discounts on the higher-end, three- to four-bedroom apartments they bought just a few years ago.

 

This month, a Chinese landlord sold a 1,300 square foot (121 square meter) apartment at the Imperial Cullinan - a high-end estate developed by Sun Hung Kai in 2012 - for HK$19.3 million, 17 percent less than the original price. The landlord told agents to sell the flat "as soon as possible," said Richard Chan, branch manager at Centaline Property in West Kowloon.

 

In the same area, a 645 square foot, 2-bedroom flat in the Central Park development was sold in just two days after the Chinese owner put it on the market at HK$6.5 million in what agents called the year's best bargain - the cheapest price for a unit of its kind over the past year.

Don't worry there will be many more bargains. Why? Because what was once a buying panic - as recently as months ago - has finally shifted to its logical conclusion. Selling.

"The most important thing for them is to sell as soon as possible," Centaline's Chan said. "In the past two weeks, those who were willing to cut prices were mainland Chinese. It is going to have some impact on the local property market, that's for sure."

Indeed. And once the Hong Kong liquidation frenzy is over, and leaves the city in a state of shock, watch as the great Chinese selling horde stampedes from Los Angeles, to New York, to London, Zurich and Geneva, and leave not a single 50% off sign in its wake.

The good news? All those inaccessibly priced houses that were solely the stratospheric domain of the ultra-high net worth oligarch and criminal jet set, will soon be available to the general public. Especially once the global housing bubble pops, which may have just happened.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
williambanzai7's picture

As goes Hong Kong, so goes, Singapore, and London and New York and Vancouver and LA and...

sixsigma cygnusatratus's picture

...Toronto, and Australia, and...

kaiserhoff's picture

Great Tyler.

  I can finally afford a crack house in Vancouver;)

i_call_you_my_base's picture

Not just any crack house, the best on the block!

fonestar's picture

This probably won't effect fonestar in Canada though?

in4mayshun's picture

Probably not. Because like gingers, Canadians have no soul and don't matter.

Freddie's picture

Ho Lee Fuk

Sum Ting Wong

discopimp's picture

Ho Lee Fuk

Sum Ting Wong

Never gets old!!!

National Blessing's picture

Zero Hedge has been predicting the death of China for a long long time.  It's starting to feel like Linus in the pumpkin patch.  Bitches.

TruthInSunshine's picture

I just saw as of 2:30 est that China Mobile only missed revenue by a mere 6 billion.

AldousHuxley's picture

Same old US playbook from Japan days....stroke new money Asian ego so much with Fed money that they don't know what to do with it internally that they park the cash right back into overvalued foreign real estate, then let the pieces fall to reset to market value and new money becomes no money as the victims of the last ones holding the ponzi bag. By the time they realized that they have been  had, US has already moved on to the next hungry ex-community materially poor country and sell capitalism again starting with dictator backed industrialization....Vietnam?

tabasco71's picture

You're touching on a philosophy of mine with this comment - that the cold war was the result of the US 'doing it' to Russia in the 70's and them not liking the resulting fiasco.  So the question is will history repeat itself with China?  After the dust has settled, I suspect the next landfill large enough to bury 2-3 generations of Western debt is Africa... rest stop in Vietnam seems feasible

Occident Mortal's picture

Africa is the only remaining part of the world not saturated with debt.

 

1000 splendid suns's picture

Deflationary home prices, inflationary food prices.

GeezerGeek's picture

Now if only we all lived in gingerbread houses, we could save money by eating our residences.

Joe Davola's picture

Mr Poon's trying to find the sugar now..

LFMayor's picture

just rich in culture.  You know, construction with cow shit, clitorechtomies, eating pygmies and screwing virgin pre teens to cure aids.

jeff montanye's picture

"As for Hong Kong, it may have been last said so long ago nobody even remembers the origins of the word but, suddenly, it is now a seller's market"

the entire thrust of the article is that it is forced selling, aka liquidation.  that is not a sellers' market.  it is a buyers' market.  whose market it is is determined by who has the power to set the price.  wish the authors would read the comments and correct.

http://www.merriam-webster.com/dictionary/seller's%20market

NotApplicable's picture

Like Tyler said, "it's been so long."

Everyone's forgotten the correct terminology!

Welcome to Bizarro World.

jeff montanye's picture

"As for Hong Kong, it may have been last said so long ago nobody even remembers the origins of the word but, suddenly, it is now a seller's market"

the entire thrust of the article is that it is forced selling, aka liquidation.  that is not a sellers' market.  it is a buyers' market.  whose market it is is determined by who has the power to set the price.  wish the authors would read the comments and correct.

http://www.merriam-webster.com/dictionary/seller's%20market

GeezerGeek's picture

Rethink your philosophy. The Cold War existed long before the 1970s. Who was it that said "We will bury you?" Hint: not the U.S. And what, exactly, do you think the US was 'doing'? 

And it was the USSR at that time. Whose fault was it in your 1070s philosophy? Nixon? Ford? Carter?

Oracle 911's picture

>>Vietnam?

Yeah this is the plan. But it will not work, because the Chinese gov will sink the US dollar.

Tall Tom's picture

Do you really think that this is the first time we did it? Look at Japan in the 1970s and 1980s. In the 1980s all of the hype was that Japan was going to buy up America. All of those borrowed US Dollars went to Japan and Japanese Corporations. It fueld such a Bubble that the Nissei was trading at 40,000 and price of prperty in Tokyo was going through the roof.

 

Then what happened to Japan? Same fucked up game. It will be the same for China.

 

Now I am not writing this because I support it because I do not support fraud. Regardless of my desires it is what it is. Same as it ever was.

Tall Tom's picture

No. I do not think that Vietnam is the next target. Close. I think that Burma is the next target. They shook off the shackles and are prime for the new Ponzi.

matrix2012's picture

AldousHuxley,

 

I wonder what size is the Vietnam to satiate next Ponzi scheme selling capitalism... hardly plausible. A few of Vietnam size may explain, but only one won't do.

soopy's picture

Yeah it fucking does.

old naughty's picture

"As goes Hong Kong, so goes, Singapore, and London and New York and Vancouver and LA and..."

...and all tourist haven(s); and in fact, all residential housings.

If China has 65 million, how many we have on this over-priced planet? And how many after foreclosures !

Run to the exits !

Spitzer's picture

Vancouver

Vancouver

Vancouver

Vancouver

Vancouver

Vancouver

 

Element's picture

BREAKING NEWS - MH370

Australian PM Tony Abbott has just announced in Parliament that an Australian AP-3C Orion may have located "credible" floating wreckage from aircraft about an hour ago.

They have notified Malaysia's govt:

http://www.smh.com.au/federal-politics/political-news/missing-malaysia-a...

 

They still need to get out there (Southern Indian Ocean west of Perth) with ships to verify it for sure. This will take days, unless they have a frigate with a heli and swimmer nearby already (or US Marines V-22 maybe as RAAF tankers could keep them refuelled).

The_Prisoner's picture

HMAS Success is on route. It should get there in a week, if the sailors could stop screwing each other out.

http://www.smh.com.au/national/its-hmas-sexcess-20100403-rkql.html

 

 

Element's picture

Map of area:

http://a.tiles.mapbox.com/v3/davidtriggs.b8370eov/page.html#3/-4.65/67.68

 

UPDATE from ABC shows area properly.

http://www.abc.net.au/news/2014-03-20/raaf-en-route-to-possible-debris-f...

From twitter US naval aircraft is apparently reporting significant radar returns on the surface in the area. Several aircraft converging on site. Should be able to get some confirmation or otherwise soonish.

thestarl's picture

I would'nt believe anything that came out of that stupid pricks mouth

old naughty's picture

wait, let me get this straight...

you mean all authorities, no?

GeezerGeek's picture

It has now been long enough for a major player to fabricate and plant evidence to prove whatever diverts attention from reality. 

soopy's picture

Thanks for that insight. Now go crawl back under your rock in Edmonton and dream the fuck on.

BraveSirRobin's picture

Doesn't matter. It's Bush's fault!

CheapBastard's picture

So....apartments there worth less then $750k ... that were bought/flipped/transferred for over $3.5 million by Mainlanders will be gladly dumped for no less then..............................$$2.8 million....

 

What a deal!

disabledvet's picture

saw a beautiful beach house in Bali bought for bitcoin actually. Really amazing...keep up the fire fonestar. "damn peculiar" but you have my curiosity.

fonestar's picture

Ah, you smell brilliance amongst salty surf my vet.

disabledvet's picture

it really amazes me. people really are buying things with this stuff.

fonestar's picture

Yes, yes they are (fonestar included).  And this finally kills the inflationist's argument that nobody would spend a deflationary currency, only hoard the units.

Schmuck Raker's picture

I have can now envision Utopia - "DisabledStar", or "VetFone".

Either way, the ultimate in third person gibberish, and reach-arounds.

TeamDepends's picture

It would really be a shame if that bitcoin dude chimed in for no reason, you know...

wallstreetaposteriori's picture

Too late.. the douche has been released...  Bitcoin is done for.  Satoshi is gay.