Builder credit crunch cause China real estate bubble to implode within months.

[touchring]

Good luck if you have bought a Chinese condo. Your builder may just be taking money from you without the intention of building it.

http://www.marketwatch.com/story/chi...yst-2011-09-14

China developers ‘short of cash’: analyst

By Chris Oliver, MarketWatch

HONG KONG (MarketWatch) — China’s real-estate market may face an escalating credit crisis, with industry data for August providing clues that big developers are running short of cash, according to Credit Suisse analysts.

The unfolding situation heralds a perfect storm for China’s home-building industry, and China’s deteriorating credit backdrop should be viewed by investors with alarm, the Credit Suisse analysts said.
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“I advocate selling all [Chinese] property-developer stocks because a credit crunch is coming,” said Credit Suisse analyst Jinsong Du, speaking with MarketWatch about the research.

Du said worries he’s had for a while about the housing market were confirmed by the “big disconnect” in data released by China’s National Bureau of Statistics on Friday.

Among figures out late last week, investment in residential projects rose to 432.9 billion yuan ($67.75 billion) in August, up 37% on year, or 4% higher from the prior month.

Meanwhile, completed residential projects in August totaled 37,250,000 square meters, a rise of 1% from a year earlier, but down 6% from the prior month.

Credit Suisse analysts said the Statistics Bureau’s figures back its earlier research which flagged that China’s real estate developers were beginning to face major headwinds.

The report, published in May, forecast that payment disputes between developers and their contracted construction companies would become more widespread, eventually resulting in construction delays and pushed back delivery dates.

“It’s finally shown up in the numbers,” said Du.

In spite of curbing the acquisition of new land and pressing for builders to slow their work, developers appear to have exhausted options to preserve cash, Credit Suisse said in its report dated Sept. 6.

Net gearing rose slightly in the first half, even as firms scrambled to improve their balance sheets, with the result “financials [are] much worse than they appear,” said the Credit Suisse analysts.

Credit Suisse forecasts property prices will decline in the second half, as sentiment surveys show enthusiasm towards property ownership beginning to wane.

Chris Oliver is MarketWatch's Asia bureau chief, based in Hong Kong.

[jpetr48]

Re: Builder credit crunch cause China real estate bubble to implode within months.

Good luck if you have bought a Chinese condo. Your builder may just be taking money from you without the intention of building it.

http://www.marketwatch.com/story/chi...yst-2011-09-14

GMO white paper on US and China real estate market
US bottoming and China bubbling

[aaron]

Re: Builder credit crunch cause China real estate bubble to implode within months.

thanks for the paper

[c1ue]

Re: Builder credit crunch cause China real estate bubble to implode within months.

GMO white paper on US and China real estate market
US bottoming and China bubbling

A nice summary, but interesting why the expansion of the real estate cycle is somehow ignored when looking at whether the US is at a bottom or not.

If the trough to peak cycle is now 8.5 years instead of 5, the next peak theoretically wouldn't be until 2015.

Similarly if you focus on the reasons underlying the cycle - i.e. monetary policy of the '90s led to the longer cycle that time, then would not monetary policy today lead to an even longer cycle time?

The last point of note is the use of family income to price.

Given the severe demographic divergence between upper quintile and middle/lower quintile income growth, it is entirely possible that a significant percentage of 'average' family income is in fact just upper quintile income.

Or in shorter words: if only a shrinking part of the population meets the $3 house to $1 income ratio - clearly 'its different this time'. The 25% of negative equity mortgage holders, which is roughly 16.5% of all homeowners, would seem to clearly fall into the "won't be buying a house anytime soon" category.

Looking further into the concept of 'new household formation' comprising pent up demand, the unemployment data for the 20 to 34 age group isn't too good; higher than overall average for the 20 to 29 age group, though slightly lower for the 30 to 34 age group. The 'not in labor force' number is also very high: nearly 25% for 25 to 34 although that is fairly constant throughout the working years

Age, sex, and race	August 2011
	Civilian noninsti- tutional population	Civilian labor force						Not in labor force
		Total	Percent of population	Employed		Unemployed
				Total	Percent of population	Number	Percent of labor force

16 years and over	239,871	154,344	64.3	140,335	58.5	14,008	9.1	85,528

20 to 24 years	21,450	15,521	72.4	13,273	61.9	2,248	14.5	5,929
25 to 54 years	124,756	101,693	81.5	93,608	75.0	8,086	8.0	23,063
25 to 34 years	41,457	33,912	81.8	30,789	74.3	3,123	9.2	7,545
25 to 29 years	21,143	17,295	81.8	15,536	73.5	1,759	10.2	3,849
30 to 34 years	20,313	16,617	81.8	15,253	75.1	1,364	8.2	3,696

[touchring]

Re: Builder credit crunch cause China real estate bubble to implode within months.

This will be a "Black Swan" event. Cry wolf 3 times, and when the wolf really comes, everyone forgets about it. This is what will happen.

Within months some smaller Chinese builders will start running away with buyer deposits, triggering a real estate bubble collapse as buyers steer clear from buying uncompleted projects, and the world has underestimated the contagion effect, particularly on countries like Germany, Italy and France that export a lot to China.

[Southernguy]

Re: Builder credit crunch cause China real estate bubble to implode within months.

Me thinks about GMO report: 1) USA real estate market has not bottomed. That is a conclusion from itulip´s thesis, I don´t have direct knowledge. 2) When they refer to Chinese market they seem to have a point. And that is in tone with EJ´s analysis. Pull, pull, and then the rock hits your face. The numbers they cite seem quite conclusive.
For us poor little investors all this seems to signal a peak in commodities markets....except, of course gold, which is a reserve currency (at last maybe I learned something). Agri commodities, metals (copper, iron, maybe silver) going down the drain rather soon.
A financial crisis in China, on top of sovereign one in Europe and US stagnant economic situation in the US seems lt like a perfect storm.
When exactly?
As usual that is the big question. Not sooner than december 2011, not later than december 2012? That is my hunch.....