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Leaked Recording Reveals True State Of Chinese Housing Market

Tyler Durden's picture




 

A leaked recording by the vice-chairman of Vanke Group (China’s biggest property developer), confirms, as The Telegraph's Amrbose Evans-Pritchard reports, what the bears have been saying for months, 'it is a dangerous bubble, and already deflating'. Mao Daqing's words, translated, are ominous: "In 1990, Tokyo’s total land value accounts for 63.3% of US GDP, while Hong Kong reached 66.3% in 1997. Now, the total land value in Beijing is 61.6% of US GDP, a dangerous level... China has reached its capacity limit for new construction of residential projects... and I don’t see any possibility for a rise in home prices." The simple chart below highlights all one needs to know - inventory is exploding - and as Mao concludes: "housing production per 1000 people reached 35; even when the housing market is hot, no country has a figure of greater than 14 - this should cause alarm."

Via The Telegraph's Ambrose Evans-Pritchard,

So now we know what China’s biggest property developer really thinks about the Chinese housing boom.

A leaked recording of dinner speech by Vanke Group’s vice-chairman Mao Daqing more or less confirms what the bears have been saying for months. It is a dangerous bubble, and already deflating.

 

Li Junheng from JL Warren Capital has translated his comments:

 

In 1990, Tokyo’s total land value accounts for 63.3pc of US GDP, while Hong Kong reached 66.3pc in 1997. Now, the total land value in Beijing is 61.6pc of US GDP, a dangerous level,” said Mr Mao.

 

“Overall, I believe that China has reached its capacity limit for new construction of residential projects. Only those coastal Tier 3/Tier 4 cities have the potential for capacity expansion.”

 

I don’t see any possibility for a rise in home prices, especially in cities with large housing inventory, unless the government pushes out another few trillion. Beijing and Shanghai have already been listed among the most expensive cities in the world in terms of the medium central city property prices.”

 

 

Mr Mao said China’s house production per 1,000 head of population reached 35 in 2011. The figure is below 12 in most developed economies “even when the housing market is hot; no country has a figure of greater than 14”.

 

“By 2011, housing production per 1000 people reached 30 in Tier 2 cities, excluding the construction of affordable houses. A persistently high figure such as this should cause alarm,” he said.

 

...

 

The numbers of flats and houses for sale has suddenly doubled. “Many owners are trying to get rid of high-priced houses as soon as possible, even at the cost of deep discounts. As a result, ordinary people who want to sell homes in the secondary market must face deep price cuts,” he said.

 

In China’s 27 key cities, transaction volume dropped 13pc, 21pc, 30pc year-on-year in January, February, and March respectively. We expect the trend to continue in April. The drivers behind the fall in price are credit tightening from the banks.”

 

“Most cities have seen an increase in the ratio of inventory to sales. Among the 27 key cities we surveyed, more than 21 have inventory exceeding 12 months, among which are 9 greater than 24 months. The supply of residential buildings is rapidly increasing month-on-month.”

 

Mr Mao said 42 new projects for elite homes in Beijing will be finished in 2015, hitting the market with an extra 50,000 units that “can’t possibly be digested”.

So there we have it. Vanke Group say the comments do not reflect the view of the company or indeed Mr Mao – which is odd – but they do not dispute that the recording is authentic.

His words compliment recent warnings by Nomura’s Zhiwei Zhang that the problem is even worse in the smaller cities in the interior, as we reported last month:

 

We believe that a sharp property market correction could lead to a systemic crisis in China, and is the biggest risk China faces in 2014. The risk is particularly high in third and fourth- tier cities, which accounted for 67pc of housing under construction in 2013,” he said

As AEP notes, it's time to rip the band-aid off - but the rest of the world should be very nervous...

On balance it is better for China to get the trauma over and done with sooner rather than later. But the rest of the world should be under no illusions as to what it means.

 

This policy decision – should President Xi stay the course – is equivalent in global scale to the decision by Fed chief Benjamin Strong to pop the US speculative bubble in 1928, causing a commodity slump that was transmitted worldwide through the dollar based currency system (Inter-War Gold Standard) and which later snowballed into something far worse.

 

The US was then the world’s rising creditor power, with foreign reserves above 6pc of global GDP, almost exactly the same as China’s holdings today. When China sneezes … you will catch a cold, wherever you are.

 

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Fri, 05/02/2014 - 14:41 | 4721273 Relentless101
Relentless101's picture

Vanke Group say the comments do not reflect the view of the company or indeed Mr Mao – which is odd – but they do not dispute that the recording is authentic.

Wait... what?

Fri, 05/02/2014 - 14:43 | 4721286 Skateboarder
Skateboarder's picture

If there is an authentic recording, you can bet your ass there is a Chinese knockoff. ;-)

Fri, 05/02/2014 - 14:47 | 4721304 Relentless101
Relentless101's picture

Nice

Fri, 05/02/2014 - 14:59 | 4721346 I am more equal...
I am more equal than others's picture

 

 

Recently was in Guangzhou and my friend leases an apartment for 3,000 Rmb.  The owner purchased the apartment for slightly more than 5,000,000 Rmb.  Not an attractive return.  More, higher priced, apartments were being constructed across the street.  This is south of the financial district and right by the river.  Nice area, lots of westerners.  Going to get ugly.

Fri, 05/02/2014 - 16:11 | 4721650 wallstreetapost...
wallstreetaposteriori's picture

In other words.... the chinese are screwed, especially since they cant use bitcoin for capital flight anymore.  About fucking time.

Fri, 05/02/2014 - 16:17 | 4721665 fonestar
fonestar's picture

Bitcoin is always in capital flight.  Sixty percent of the time, sixteen days a year.

BUY NOW!!

Fri, 05/02/2014 - 16:44 | 4721763 Seer
Seer's picture

Made me think of this one:

There are three kinds of people in the world.  One kind understands math.  The other doesn't.

Fri, 05/02/2014 - 16:56 | 4721803 James_Cole
James_Cole's picture

Best line:

I don’t see any possibility for a rise in home prices, especially in cities with large housing inventory, unless the government pushes out another few trillion. Beijing and Shanghai have already been listed among the most expensive cities in the world in terms of the medium central city property prices.”

What's a few trillion between friends anyway?

Fri, 05/02/2014 - 15:00 | 4721349 NotApplicable
NotApplicable's picture

Wait a minute... housing prices... can fall?

Fri, 05/02/2014 - 15:28 | 4721458 zaphod
zaphod's picture

In real terms yes.

In nominal terms no, central banks will "fix" nominal prices to always go up.

Fri, 05/02/2014 - 15:03 | 4721360 NoDebt
NoDebt's picture

I dunno.  Lately I've been thinking that maybe nothing would ever get built without blowing a bubble in it.

Remember McClendon or whatever his name was building all those Nat Gas rigs?  Man almost single-handedly blew that bubble for personal gain (followed quickly by personal bankruptcy, as well as severe damage to his company).  But the rigs are still out there.  They didn't go away.

Hey, whatever.  It's Friday and I'm taking the Cub Scouts camping.  You can down-arrow away, I won't be around to notice.  Have a good weekend, everyone.

Fri, 05/02/2014 - 14:49 | 4721312 gdiamond22
gdiamond22's picture

We don't have concrete numbers, but we dispute the numbers they have.

Fri, 05/02/2014 - 15:41 | 4721526 Seer
Seer's picture

I think that steel/rebar numbers are more accurate!

Fri, 05/02/2014 - 14:42 | 4721281 101 years and c...
101 years and counting's picture

the entire pile of shit will be dumped on the public.  bubbles are made to pop.  this one is no different....except it is much bigger and done because of Fed printing....which will make everything 2-3x worse than 08/09.

Fri, 05/02/2014 - 18:48 | 4722198 TruthInSunshine
TruthInSunshine's picture

LTTLR*

Look To The Leverage Ratio**

**Especially look to the leverage ratio when "assets" are as highly mis-labeled and accounting metrics dealing with such quaint notions as "mark-to-market" (which should now be called "mark-to-mark it up") and "fair market value" (since replaced by "unicorn replacement value") are FUBAR.

Fri, 05/02/2014 - 14:43 | 4721283 Nana
Nana's picture

Deny - Deny ...then bust!!!!

 

Fri, 05/02/2014 - 14:44 | 4721284 Dr. Engali
Dr. Engali's picture

Haven't these Chinese learned anything from the Mighty Krugman? The way forward to deal with over capacity issues is to tear all your empty cities down and then rebuild them. Hello... McFly......  he is a Noble peace prize winner.....

Fri, 05/02/2014 - 15:00 | 4721352 NotApplicable
NotApplicable's picture

Why bother, when they fall over on their own?

Fri, 05/02/2014 - 14:45 | 4721291 Wile-E-Coyote
Wile-E-Coyote's picture

Is it me or is bad news gaining real fucking momentum?

Fri, 05/02/2014 - 14:53 | 4721320 gdiamond22
gdiamond22's picture

Which is why stocks are so bid

Fri, 05/02/2014 - 14:45 | 4721294 assistedliving
assistedliving's picture

1.3B Chinese?  "an extra 50,000" luxury units cant be digested? 

it's not the number its the PRICE and that's the RESET we're all waiting for

Fri, 05/02/2014 - 14:46 | 4721296 pods
pods's picture

This is going to end well.

pods

Fri, 05/02/2014 - 14:46 | 4721299 Skateboarder
Skateboarder's picture

You can only sweep the dust under the carpet for so long. Eventually it will be a mound if you don't clean it up.

Fri, 05/02/2014 - 14:46 | 4721302 LawsofPhysics
LawsofPhysics's picture

Burish!!!

Fri, 05/02/2014 - 14:56 | 4721335 imapopulistnow
imapopulistnow's picture

ROR

Fri, 05/02/2014 - 15:01 | 4721354 ParkAveFlasher
ParkAveFlasher's picture

Yes but the question now becomes, who reaked?

Fri, 05/02/2014 - 15:22 | 4721431 TheFourthStooge-ing
TheFourthStooge-ing's picture

This Evan Ambroses Piltchard guy, a very professional 'American' media worker, has managed to build a very nice scheme to harvest cash from controversion.

He has now his followers who follow to get reinforcement on the so much expected Chinese housing downfall day and detractors who follow to mock the articles simplistic line, giving them plenty of cheap shot at no sweat.

Meanwhile, Piltchards laughs his way to the banks (he probably has several) as appealing to both sides in a controversy is the best way to reap a healthful harvest of cash.

That is the magick. The greed for fantasy. The greed for delusion. The greed for duplicity...Similar magick as selling infinitive growth, hard work and innovation drivels...

Sat, 05/03/2014 - 08:23 | 4723305 F-X
F-X's picture

I have a personal interest in the China housing market remaining healthy. If it does, its good for me, so I have no interest in promoting doom just to be controversial.

But I have no doubt whatsoever that what Evans-Pritchard reports the Vanke vice-chairman said is true. The data is there in black and white. Developers are already giving 20% discounts in Hong Kong and major players in the housing market are forecasting a 30% drop in luxury housing prices in HK by the end of 2015. Mainlanders are trying to dump their luxury HK properties now and are taking huge losses to do so. 

The fundamentals are even worse in the Mainland.

Fri, 05/02/2014 - 14:50 | 4721314 BrigstockBoy
BrigstockBoy's picture

Who was the audience? A dinner speech to what group?

Fri, 05/02/2014 - 14:59 | 4721344 LFMayor
LFMayor's picture

The group was a band of south american real estate brokers who are looking to sell parcels and homes recently vacated by deceased nazis.  Them chinese oligarchs need some damn place to run and hide!

Fri, 05/02/2014 - 14:54 | 4721322 expiredeternity
expiredeternity's picture

Over-capacity is contained...

Fri, 05/02/2014 - 14:56 | 4721337 Cursive
Cursive's picture

Who cares?  It's China, it's not like it's the world's second (soon-to-be largest) economy.  Right?  U-S-A!  U-S-A! U-S-A!

Fri, 05/02/2014 - 14:58 | 4721341 youngman
youngman's picture

On that recorrding..did he say anything about black basketball players....Magic Johnson and Oprah might want to buy his construction company too....

actually Chinese do not buy houses to live in..they buy them as investments...a savings account....a different market than a user market I think...

Fri, 05/02/2014 - 14:59 | 4721345 thorgodofthunder
thorgodofthunder's picture

Armed with this valuable information the question then becomes- how to profit from afar?

Enlightened opinions and thoughts are appreciated.  I have a warchest ready to deploy.

Fri, 05/02/2014 - 17:30 | 4721936 Ban KKiller
Ban KKiller's picture

Go long on anything to do with misery. Alcohol, make up, entertainment. 

Or start a recovery service for dead floating pigs. 

Sat, 05/03/2014 - 07:20 | 4723272 AdvancingTime
AdvancingTime's picture

Never before has mankind diverted such a large percentage of wealth into intangible products or goods.  I contend this is the primary reason that inflation has not become a major economic issue. 

The modern economy is loaded with interwoven contracts reeking of contagion. If faith drops in these intangible "promises" and  money suddenly flows into tangible goods seeking a safe haven inflation could soar even as debts go unpaid and promises are left unfilled. This could really shake up the world, more on this subject in the article below.

http://brucewilds.blogspot.com/2014/04/inflation-seed-of-economic-chaos.html

Fri, 05/02/2014 - 15:03 | 4721361 seek
seek's picture

Man, every freaking economy in the world is just sitting on one or more ticking time bombs -- residential in China (and Canada for that matter), insane equity values in the US, "pick one" in Europe.

When this shit blows it's going to write history like never before.

Fri, 05/02/2014 - 15:17 | 4721412 rosiescenario
rosiescenario's picture

While it is probably highly unlikely, that might even cause a few people to buy PM's....

 

Speaking of housing, how's WB's investment in USG working out? 

Fri, 05/02/2014 - 15:45 | 4721538 Seer
Seer's picture

Be sure to note Australia's mess...  (with an East/West split they'll feel more pain- they'll end up orphaned)

Fri, 05/02/2014 - 15:09 | 4721386 Otto Zitte
Otto Zitte's picture

Awesome consumer buyer opportunity. Now all the Chinese can have their own place to live, and stop the invasion.

Fri, 05/02/2014 - 15:26 | 4721443 Financial Cold ...
Financial Cold Fusion's picture

The total land value of Somolia is just .001 percent of US GDP.  That makes it a screaming buy right?  Course, I don't know if that includes all the swag that they've looted or not so buyer beware.

Fri, 05/02/2014 - 15:32 | 4721475 LFMayor
LFMayor's picture

Section 8 on a geopolitical scale.  Sweet.  So poor they can't even build cow-shit huts there.

Net imports:  EBT's, WIC.
Indigenous production:  Flies, misery, pot-bellied starvlings.

Fri, 05/02/2014 - 15:34 | 4721490 Duude
Duude's picture

Ka-Shing had already dumped huge quantities of his Chinese real estate in the last year, and he's been a big investor since 1990. That tells me more than some leaked recording.

Fri, 05/02/2014 - 15:43 | 4721531 Luckhasit
Luckhasit's picture

Now we know why the Chinese are buying up real estate abroad. If you can't park that wealth at home and lose money go somewhere else!

Globalism baby!

Fri, 05/02/2014 - 15:44 | 4721533 omniversling
omniversling's picture

Some additional leckordings on topic:

 

 

How China Fooled The World With Robert Peston 

http://www.youtube.com/watch?v=YW3h4wv8_ko

 

http://davidstockmanscontracorner.com/2014/03/31/chinas-monumental-ponzi...

 

Fri, 05/02/2014 - 15:47 | 4721542 Seer
Seer's picture

Wow, a graph on China in Red, White and Blue!

Fri, 05/02/2014 - 15:54 | 4721567 Bunga Bunga
Bunga Bunga's picture

but but but population is growing. They have to live somewhere.

Fri, 05/02/2014 - 16:09 | 4721640 itstippy
itstippy's picture

Ha ha!  

The stupid Chinese built a shitload of inappropriatly extravagent housing and sold it to eager buyers who levered-up to get in, thinking housing values would always go up and they'd make lots of money by "owning" a fancy house.  Now the housing is going to go down in value, destroying collateral and raising Hell with the whole financial system.  It will end in tears for everyone but the well-connected.

Stupid Chinese.

 

Fri, 05/02/2014 - 16:42 | 4721759 Seer
Seer's picture

Yeah, Communists ARE stupid!

Fri, 05/02/2014 - 16:33 | 4721731 1stepcloser
1stepcloser's picture

Housing minister Mi Le yu said "we're rucked"

Fri, 05/02/2014 - 16:41 | 4721755 Magooo
Magooo's picture

"Get it done with sooner than later" -  bullshit --- if they deal with it then the entire chinese financial system blows sky high and takes the global economy with it...   same reason japan has never dealt with the impact of their housing bubble.

Fri, 05/02/2014 - 17:34 | 4721951 Ban KKiller
Ban KKiller's picture

Greed is hard to contain. It is listed as a sin for a reason. Not being religious...just think about being greedy and what could happen. What? It is different this time? Well, Ok then. 

Off topic...do they sell old timey weed brands like Columbian Gold in CO.? Or any Red?

Sat, 05/03/2014 - 05:51 | 4723216 Zeta Reticuli
Zeta Reticuli's picture

Where I live in Qingdao, a second tier city of 9 million, homes are selling fast. The townhouses across the street are selling for over 1 million US and I see people moving in all the time. I paid $101,000 about 3 years ago for a new 927 sq. ft. 18th floor unit. Can't complain here.

Sat, 05/03/2014 - 07:12 | 4723269 AdvancingTime
AdvancingTime's picture

Only a fool would claim no bubble or distortion exist. China has entered a great credit trap and is awash in overcapacity and debt. Much of the recent growth in China after 2008 came from a massive 6.6 trillion dollar stimulus program that expanded credit and poured massive amounts of money into the system. This money encouraged expansion and construction with little regard as to real demand or need.

After several years of growing debt concern is rising the whole unstable pyramid is about to come crashing down bringing China and possibly the global economy with it. This is not just about writing off a few bad loans. The shadow banking sector is so large that concerns exist about contagion and a domino series of defaults that might rack the economy as savers lose money. More on this subject in the article below.

http://brucewilds.blogspot.com/2014/03/china-and-great-credit-trap.html

Do NOT follow this link or you will be banned from the site!