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China's Housing Slump Accelerates, Worst In Over Three Years
While the rest of the world is focused on what any given "developed" (or Chinese) central bank will do to continue the relentless liquidity-driven rally to new record highs, China has bigger problems as it continues to scramble in its attempts to figure out how to halt the slow motion housing crash that has now firmly gripped the nation. So firmly, that according to overnight data from the National Bureau of Statistics, monthly house prices dropped in some 68 of 70 tracked cities, the most in over three years, since January 2011 when the government changed the way it compiles the data.
On an annual basis, the decline accelerates as well, with 19 cities seeing a Y/Y price decline in August, up from just 3 in July. In actual percentage terms, the prices of new houses dropped -1.15% in August, down from -0.93% mom in July. As Bank of America summarizes, "The further acceleration in home price decline is probably due to more projects offering discounts and sluggish sales performance in August" That... and the fact that once Chinese speculators have seen just how painful the housing bubble can be on the downside, they may be less reluctant to pursue it.
Wherein lies the rub, because while to the US the equity market is the "wealth effect" transfer mechanism, in China, where some $25+ trillion in bank assets are mostly held in the housing space, it is all about the housing market. As such, one better hope that Beijing can halt the accelerating housing market drop or else what the Fed, BOJ or ECB do with their paltry injections, at least as compared to the Chinese $1 trillion/quarter inside money injection, will seem trivial compared to what is increasingly looking like a hard landing for China.
Some more details from Bloomberg:
Home sales slumped 11 percent in the first eight months of this year amid an economic slowdown after banks tightened property lending to curb default risks. While 37 of the 46 cities that imposed limits on home ownership since 2010 have removed or eased such restrictions as of Sept. 3 to stem the decline in sales, a wait-and-see attitude is still prevalent among homebuyers, according to Centaline Group, parent of the nation’s biggest property agency.
“The policy easings only increased the number of people qualified to buy, but the number of those with the ability to didn’t rise noticeably” as mortgages remain tight, Donald Yu, a Shenzhen-based analyst at Guotai Junan Securities Co., said by phone. “There’s still room for prices to go down further.”
Private data also point to continued price declines. The average new-home price fell 0.59 percent in August from July, the fourth consecutive month of declines, according to SouFun Holdings Ltd., the nation’s biggest real estate website that tracks 100 cities.
New-home prices dropped 2 percent from July in Hangzhou, the capital of the eastern province of Zhejiang, the biggest decline among all cities. They fell 0.9 percent in Beijing and 1.1 percent in Shanghai, according to the government.
Prices were unchanged in Wenzhou in Zhejiang, while they gained 0.2 percent in Xiamen, a southern port city. Prices fell in 19 cities from a year earlier, led by a 5.4 percent slide in Hangzhou, as compared to three cities in July, according to today’s data.
As a result, China's CNY500 billion liquidity injection, so instrumental to push US stocks higher two days ago, is already long forgotten in China:
The Shanghai Stock Exchange Property Index, which tracks 24 developers listed on the city’s exchange, closed 1 percent lower, the biggest drop since Aug. 14.
The proposed solution is more of the same, even as current data shows even more acceleration in the decline: new-home sales in the first 14 days of September in the 40 cities tracked by Centaline fell 4.7 percent, when measured by the combined space of homes sold, from the same period in August, trailing expectations for a traditionally strong month, the realtor said in a Sept. 15 report.
“We believe most developers will opt to accelerate sales to strike for a more secure cash position amid the market uncertainties,” Barclays Plc’s Hong Kong-based property analysts led by Alvin Wong wrote in a Sept. 14 report. “More attractive price discounts seem necessary to compensate for the expensive mortgage rate.”
The central province of Hubei eased property policies on Sept. 15, cutting taxes and reiterating that interest rates for first-home buyers can be lowered to 70 percent of the central bank’s benchmark, a discount that has become rare since last year. Hubei joined regions including Hebei, Sichuan and Fujian in issuing provincial policies to boost local housing markets.
“The cooling measures the government put in place have actually worked,” Peter Churchouse, publisher of the Asia Hard Assets report, said today on Bloomberg Television. “The result now is they’re going to take the foot off the brake pedal. You’re already seeing the easing of tightening measures. That’s probably going to mean that we will see a bottoming of this cycle over the course of the next two to three months.”
Will China finally succeed in catching the falling knife? We doubt it, but it will certainly throw the kitchen sink at it. In the meantime, we expect the following charts to be avoided by everyone whose head is firmly in the sand.
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Another buying opportunity?
Word around Beijing is that the only thing that will fix the Chinese housing market is a war with Japan.
Yea maybe they can invade Japan and force octagenarians to buy condos in NanJing
Why would they want to get their asses kicked again?
Xinhua says buy the dips: Xinhua: The Stock Market Is Safe, Foreigners Are Buying, Bull Market Is Here
That's because foreigners (Americans) are idiots. Tulip mania for the 21st century.
Fast growth tends to mask flaws and weakness within a system, and China has been growing like a weed for years. To make things worse many of the investment decisions were driven by politics and often influenced by corruption. This has created massive overcapacity. Money has been poorly allocated and often shoveled into deep holes like ghost cities and bridges to nowhere.
Currently a 6.6 trillion dollar spending spree used as stimulus to combat global economic slowdown is coming back to haunt China. This has greatly expanded credit and created huge overcapacity during the past five years. A massive debt crisis now looms in the offing. At stake are trillions of yuan in bank loans that companies producing everything from ships to steel to solar power are struggling to repay as the world’s second-largest economy in in the mist of a major slowdown and the weakest annual growth since 1999. More in the article below.
http://brucewilds.blogspot.com/2013/11/china-land-of-overcapacity-and-de...
"many of the investment decisions were driven by politics" -- so is America turning Japanese or Chinese...
Let me be clear (again), there is not, nor will there ever be a political, monetary, or economic solution to resource scarcity.
hedge accordingly.
As a builder, I know, vacant real estate deteriorates. Here in the US, some mortgage holders prefer, or concede, to leave a default owner in the property, simply to maintain it's value. Lack of heat, ac and vandalism devalues the property.
So what interests me is two things.
Are the stories of whole towns,apartment blocks, commercial space, sitting vacant true?
And do the Chinese build supporting infrastructure ( power plants,water and wastewater,etc) to support these vast vacant spaces? And does that infrastructure sit idle, while the properties are idle? Or, do they build out these vacant enclaves, without the needed infrastructure in the first place, which just seems even more disastrous.
These systems need to grow in harmony with each other. Power plants can't sit idle. Wastewater plants can't sit idle or underutilized. At the same time, where is the sense in building, if there is not enough power or services to support an occupied building.
Can anyone comment on this?
The supporting infrastructure is very iffy. Water supplies are limited and polluted plus wastewater treatment is nearly non-existent. They are building new power plants with the latest pollution equipment which they immediately bypassed due to high maintenance requirements. Roads and railways are limited and poorly built. We talk about cronyism here in the states but watch China to see it in full flower.
Recently build roads and railways are NOT poorly built. I drive those roads every day. The old roads are a disaster, but the new roads look like any modern, 4-lane, divided highway.
The lack of a maintenance culture is true. There is no mindset, cultural preference, nor desire to spend money, for maintenance. Chinese will ask if your object is broken, why does it need something. You tell them it requires maintenance, they then conceptualise the thing as broken and needing to be fixed. They cannot think of the concept.
Think of them as pre-scientific, Medaeval peasants, moving to the 21st C in 30 years. You will have many with a 2000 year out of date mindset, living amongst modern tech, and this is quite true especially in the smaller cities.
On those new roads you only see what's on top. Properly prepared road the road base is 10 foot (3 meters) deep before you ever start pouring the road surface. Without proper bases those roads will age poorly.
Please re-read my post. I live here. I see them build the roads and know the depth of the prepped roadbed. Graded soil, compacted, gravel, concrete and asphalt on top. Cracks in the roadbeds are few and far between, this on new highways, provincial highways, that get heavy traffic, many 22-wheelers that weigh in at 60 tonnes. New roads continue to be smooth running 5+ years after completion.
Roads are maintained by tolls, and most of these new roadways are toll ways.
Are there older roads that are constructed as you describe, with the obvious wear signs? Yes.
New roads and freeways? Not that I have seen.
I can.
China is unlike any other place. Every meta assumption you make does not apply.
Vacant property in the USA would have wood, drywall, carpet, finished lobbies, interior fittings, landscaping, and so on.
In China the property will be the barest reinforced concrete skeleton frame of a building, left open to the elements or enclosed with brick walls.
Then it will be left with a guard at a shack.There are no carrying costs, the structures are not heated. It will be bare concrete on the walls, floor and ceiling, not even junction box holes cut out. Just flat slab everywhere. No windows and no doors. They won't enclose the stairwell, or the basement, or install the elevator, to keep people from entering upper floors once the construction elevator is removed. Plumbing and electricity will wait.
There are almost no carrying costs. It just sits, empty and cold, with no maintenance staff on payroll. There will be no landscaping or other improvements until the market turns.
Central banks will keep the bubbles inflated - no matter what happens.
Shit will finally hit the fan, once people start fighting for food. However, our leaders are working on an alternative plan called "world war III". Let's see if that gains momentum.
"our leaders are working on an alternative plan called "world war III"." They are not working on the plan, they merely have to dust it off like the patriot act.
The difference being that the state will publically execute some high profile "bad actors"...
In the U.S.S.A. we don't bother with even trying to pretend there is any set of law...
China prints,prints,prints....bury this shit, oh oh more ,print,print,print
When we are done we will be the new reserve currency.....right?