China Is Orchestrating A 30% Crash In The Property Market

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