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Why China May Avoid a U.S.-Style Property Crash   [Copy link] 中文

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Post time 2014-10-21 08:28:27 |Display all floors
From wsj

Workers demolishing illegal construction on a rooftop in Beijing.

Is there a property bubble in China, and would it pop like the ones in Japan and the U.S.?

China’s housing sector is  in terrible shape, says a new report by Goldman Sachs . But even if the market were to collapse, the consequences may not be as bad as they were for housing busts in the U.S. and Japan.

The housing market in China saw a boom following the global financial crisis, with home price more than quadrupling between 2005 and 2013. But in recent years, real-estate enthusiasm led to rising leverage and ballooning levels of inventories that led to ghost towns in many parts the country.

“China has clear signs of ‘froth,’ if not a bubble, in housing,” says Goldman Sachs. It looks reminiscent of the bubbles in Japan in the early 1990s and the U.S. from 2006 to 2010, it says—and finds China might turn out differently.

Housing bubbles typically have four factors in common, Goldmans’s report says. First, prices increased dramatically relative to fundamentals. Second, expectations of future prices became unrealistic. Third, credit growth mushrooms, fueled by easy monetary policy and regulatory gaps. Finally, in the late stages, the supply of property booms.

China is at a much earlier stage of urbanization compared to Japan in 1990 and the U.S. in 2006. China passed the 50% mark in 2012, and the shrinking household size and the continued need to replace shabby shelters would likely continue to drive demand for homes.

Like the other two countries, there has been rapid credit growth in China. But the rising debt levels were among builders and local governments, not buyers. The U.S. housing crisis was characterized by loose lending standards for consumers, with many unqualified borrowers taking on too much debt and relying on mortgage products with teaser rates.

“The story in the Chinese mortgage market is entirely different,” says the report.

Then there’s the fact that China’s homeowners have more skin in the game. First-time home buyers have to pay a minimum 30% down payment. Buyers of second homes have to pay 60%. Furthermore, Chinese households have lower debt levels compared to the U.S. households, with 18% having mortgage debt compared to 49% in the U.S., said the report.

“Low household leverage suggests that there is room for policy makers to use credit availability to dial up housing demand if needed (though at the potential cost of demand in future years),” says the report.

In the near term, high and rising levels of inventory would still weigh down construction activity, says the report. Recent measures by the central bank to loosen mortgage rules – allowing more home buyers to qualify for cheaper down payments – would help, and there are more tools that policy makers could use to avert a sharp downturn.

Beijing’s leaders could ease mortgage-lending conditions further and defer regulatory actions that might dry up investment demand, such as the rollout of property taxes. They can also boost construction activity via infrastructure spending. If default risks among developers rise too quickly, they can provide liquidity to minimize any spillover effects.

However, in practice, Beijing faces more constraints in calibrating a soft landing, says the report. It has an incentive to keep curbs on China’s massive shadow-banking system to limit future excesses in construction. At the same time, as economic growth slows, China will also be tempted to support demand.

–Esther Fung. Follow her on Twitter @estherfung

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Post time 2014-10-21 16:01:21 |Display all floors
3.5 years of housing stock by PRIVATE developers!

some 18 - 21 million in STOCK, held by GIANT developers.
in additions another 20 - 30 million held as INVESTMENTS by the MIDDLE CLASS.
low mortgage level.
SO IT'S NOT A PROBLEM if CHINA kick starts INVESTMENT in INFRASTRUCTURE in the SOUTH WEST <Yunnan>, south <Guizhou> and I get the "feeling" North <Mongolia>, Northeast <Heilonjiang, Jilin>, Northwest <Xinjiang> plus MILITARY INDUSTRIAL investments.

NOT a BIG PROBLEM, probably due to USA real economy = CHINA real economy. <US$15 trillion = US$15 trillion>
<Australia will be HIT badly due to COAL, iron ore exports likely to be severely affected>

China itself now at US$11,000 per capita income <after adding the GREY economy> and SEVERE female assembly labour <age between 16 to 35 years old, mostly NOW at HISTORIC low availability> ----- and SHOW TELL SIGNS

PRODUCT CONVERGENCE, standard product designs <notice TV, MOBILE, computer monitor all all the same>, simpler product range.

CHINA next step IS TO RELOCATE "cotton" trades - to conserve FEMALE labour - while pushing it's LOCAL large CONSUMER PRODUCT CORPORATES to be UPGRADING IT'S industries TO THE NEEDS of an ABOVE US$10,000 per capita economy - ie. QUALITY PRODUCTS of 2 to 3X higher average value. <something is holding back this changes - probably WALL STREET LOYALTY among the GUILDS groups>

China WESTERN PROVINCES will need to negotiate with the EASTERN PROVINCES or just OUTRIGHT inter provincial competition to produce PRODUCTS that COLLORATES with a higher per capita income - COMMON SENSE based on the PORNOGRAPHIC EXPOSE by the BEIJING CENTRAL GOVERNMENT.

The REAL ESTATE DEVELOPER guild must have SEVERE reason for overstocking, for whatever reasons!

Japan, Taiwan, Malaya Central-Singapore now has BIG OPPORTUNITIES for a NEW SPURT in growth........but the ISSUES and PROBLEMS that needs to be SOLVED, NOT really a OPEN FORUM discussion materials!!!!!


Green DRagon

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Post time 2014-10-21 16:08:00 |Display all floors
The SOFT fiber products are mostly BELOW US$50,000 per worker VALUE added industries.

WHILE the ELECTRONIC & ELECTRICAL industries, MOBILE & COMPUTER industries are all above US$50,000 per worker VALUE ADDED industries. SO IT'S does not take a ROCKET SCIENTIST to figure this simple problem - just some OF CHINA leaders, industrial leader BRAVE enough to SUGGEST THE SOLUTION.

Massive losses will be expected, i suspect SHANGDONG will be HIT with a lot of NEGATIVE ASSETS, while UNSMART iron and steel investments especially in the COMMODITY specs in Jiangsu, Hebei will be hit too -

MASSIVE STATE investment in INFRASTRUCTURES, especially VIADUCTS roads in YUNNAN, GUIZHOU will benefit CONSTRUCTION COMPANIES in Sichuan <with the massive capabilities - I've met some SICHUAN engineers, and understand their REAL strengths>, while the 36 MILLION council housing apartment will keep MIGRANT WORKMEN employed BUT will not have the same impact of the QUALITY construction <thus higher cost> of the PRIVATE DEVELOPERS.

PRESIDENT XI needs to act fast to prevent a RECESSION in China.........


Green DRagon

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Post time 2014-10-21 16:17:50 |Display all floors
Guangdong SME, SMI assembly factories, as well as those in Zhejiang, Jiangsu and Shandong will be TERRIBLY unhappy at the prospects of YET a ASSEMBLY INDUSTRY relocation, JUST 35 YEARS after - and the BOOM in relocation post 2005.

BUT the graduates of the NEW GENERATION needs URBAN SERVICE jobs that comes with HIGHER QUALITY DURABLE, consumables - and thus HIGHER SALARIES............

They are knows THIS, it's JUST THE OBVIOUS ------ but BILLIONAIRES nowadays are CLOSELY LINKED to the PROVINCIAL government political arm, they could just bear HUGE losses, while MIDDLE CLASS in other PROVINCES dread the lost of their business or the need to be located OUTSIDE CHINA.

Who wants to have to MOVE OUT enmasse out of their HOME TERRITORIES.
Those of us IN THE NANYANG, are used to such movements - Singapore, Malaya, Korea, Japan, Taiwan has DONE SUCH, now it's time for GUANGDONG, JIANGSU, ZHEJIANG and SHANGDONG citizen to face the same REGION TROTTING as well.

Noticed a SHANGDONG COMPANY, DAI YING has made the FIRST BRAVE MOVE - investing a 250,000 spindle factory with only 1,200 workers - thus a FULLY ROBOTIZED mill - much higher standards than it's own facilities invested since 1990's......

...and fearing the worst for it's own mills in China!

very sensitive, especially understanding the PSYCHOLOGY of the CHINESE SCRIPT educated fellas.

Green DRagon

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Post time 2014-10-21 18:27:42 |Display all floors
The Chinese government will not allow a property crash to happen

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Post time 2014-10-21 21:37:43 |Display all floors
I simply don't belive a unit, without its own land to stand on, worth that much.

I would be better off if deposit my money into my bank, use the interest to pay the rents. well of course if I have the money to buy the property

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Post time 2014-10-22 00:17:45 |Display all floors
when you dont have a secure good payin job just aint worth it to get a condo with high maintenance fee for ev'ry month that's why many big cities around the world are stuck with this sorta real estate deal  
a man who uses his hands is a laborer. one who uses his hands and his mind is a craftsman. but he who uses his hands, his mind, and his heart, is an artist...

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