Guest Post: China's Real Estate Collapse

Submitted by South of Wall Street

China's Real Estate Collapse

As I listen to all types of perma-bull talk about how the S&P would be at 1400 if it wasn't for Europe (which is the equivalent of: if my wife was 100 pounds lighter... she'd be a supermodel), I can't help but pulling my hair out.

The situation in Europe is clearly bad, and after reading Michael Lewis' new book... appears almost impossible to be resolved without massive defaults.  However, the other domino in the equation is the Chinese real estate market. The 'global growth engine', China, is running out of steam.  Their policy of placing market orders on anything and everything to inflate stimulate the economy - surprise, surprise - is proving to be unsustainable.

Take a minute to go thru this article.

According to Stephen Ip, infrastructure and real estate industry lead partner for KPMG China, property developers have found refinancing increasingly difficult, but worse situations could develop."Although the debt-equity ratio of some listed property companies have exceeded 100 percent, they still have alternatives to maintain operations, such as issuing convertible bonds or preferred shares to international institutional investors, selling project stakes and cutting prices to stimulate sales," he said. Link

So - they're going broke slowly.  Got it.  The implications are severe as everything from coal to casinos are impacted.  Not surprisingly, the Chinese don't think its a big deal.

"Given the importance of the sector to the whole economy, a hard landing would be hard to avoid," Wang said. "Such a property-led hard landing scenario is quite likely in the next few years, even though we do not think the property market is about to collapse now." 
Chinese officials hold a different viewpoint.