China's Real Estate Bubble — Is The Collapse Here?

Source: Decline of the Empire

I continue to be dumbfounded by China’s miraculous economic growth. I don’t of course believe the official GDP statistics emanating from state officials, for they are as phony as a 3-dollar bill. But I do know that China makes up 40-50% of the world’s commodities demand, and if their economy goes into a tailspin, prices for things like cement, steel, aluminum, and crude oil could drop precipitously. China also helps to drive global food prices as the diets of their newly middle class “consumers” grow richer in protein. So I keep an eye on China, although it is not the main subject of this blog.

Mike Shedlock is proclaiming that China’s real estate bubble has burst.

The property bubble in China has finally burst. Denial has turned to anger as Shanghai Homeowners Smash Showroom in Protest Over Falling Prices—

A group of around 400 homeowners in Shanghai demonstrated publicly and damaged a showroom operated by their property developer after the company said it cut prices. Home buyers had wanted to speak with the developer to refund or cancel their contracts but were unsuccessful, according to local media. One report said the price cuts exceeded 25% per square meter.

The local media reports said an unspecified number of people were injured.

Chinese media separately reported that another group of Shanghai homeowners gathered on Saturday to speak with Longfor Properties Co., after it dropped asking prices to 14,000 yuan per square meter from 18,000 yuan per square meter at a residential development in the city’s Jiading district.

The Shanghai property-owner demonstration found little support on China’s Internet, where most still expressed worries that housing prices are too high.

22% Drop Overnight

The drop from 18,000 to 14,000 yuan is a 22% overnight drop and that is just a down payment on the carnage that is coming…

The Financial Times ($ubscription) story China developer warns on price falls fills out the details—

China’s largest real estate developer believes the country’s property market, a key driver for the economy, has turned and expects conditions to worsen in the coming months as sales prices volumes decline further.

China Vanke, the country’s biggest developer by market share, said government efforts over the past year to rein in soaring prices were having a severe impact on the market and developers were being squeezed after sales volumes in 14 of the country’s largest cities halved in September from a year earlier.

“We can see a trend of declining sales, especially in the major cities,” Shirley Xiao, executive vice-president at China Vanke, said on a conference call with investors on Tuesday. “Prices have begun to decline little by little so we think even buyers who are able to buy will choose to wait for now because they’re targeting even lower price cuts.”

That last part, where buyers wait for prices to fall further, is a hallmark of a bursting bubble.

Investors and analysts are watching the Chinese real estate sector closely for signs of collapse because of its importance to the overall economy and the effect a crash could have on everything from global steel and copper prices to social stability in the world’s second-biggest economy.

A 30 per cent drop in property prices would precipitate a collapse in fixed investment in China and the country’s investment-driven economy would experience a so-called hard landing after years of annual growth above 9 per cent, according to UBS economist Wang Tao.

Property investment accounts for more than 20 per cent of total fixed investment in China and UBS estimates almost 30 per cent of final products in the economy are absorbed by the property sector.

“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,” Ms Wang said.

Why not now? China appears to be over the hump. Property prices are starting to decline in 14 China’s largest cities, but it may take some time for those price declines to accelerate. Regardless of timing, the inevitable “collapse” has now begun. Massive deflation in Shanghai and the accompanying riots sure do look like signs of a collapse to me.

I fear the world has been so preoccupied by the endless debt soap operas in Europe—Days of Our Lives, As The World Turns— that they have not noticed what’s happening in China, which may be much more important to the fate of the global economy over the long run. As I’m sure you know, some Americans have become quite adept at identifying stages in the lifecycle of bubbles

Bonus Video — excellent, from ChinaForbiddenNews (with subtitles)

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