Robert Lenzner Explains Why Chinese Real Estate Bubble Is Bursting
Of the 90 publicly listed Chinese property developers listed on the Shanghai and Shenzhen stock exchanges, almost two-thirds of them reported negative operating cash flows for the first half of 2010. No wonder the People’s Bank of China asked these companies to estimate their level of write-offs if home prices were to fall by a humungus 60% instead of the prior target of 30%. At t he time my China hands made little of the seemingly worrisome instruction.. I guess everyone wanted to believe that the Chinese equity market would remain the golden goose even as US equity prices faltered.
This sorry state of affairs obviously has repercussions for the Chinese economy and following on is a risk to the level of global growth. Trees don’t grow to the sky permanently. Real estate prices are 60% higher in China today than they were after the 2008 global financial crisis sent Chinese property stocks down 40% after a run-up of 10 times from 2005 to 2008. In fact home prices in Shanghai, Beijing and Shenzhen have risen so far into the stratosphere that mortgage payments on them are over 80% of average annual income, according to a recent Morgan Stanley chart. Obviously, this is unsustainable.
China’s central bank has decided to stem this madness by curbing loans to buyers of 2nd and 3rd homes or to buyers who can’t prove they can afford peak prices.. Could this slowdown in property development impact other areas of the Chinese economy? Well, power rationing in Zhejiang province is bound to reduce demand from copper fabricators. China’s coking coal imports are falling as is the price of iron ore from Australia.
Read more at: How to profit from the coming collapse of China
Read the original story at Israel’s Financial Expert
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