A report from the Renmin University of China suggests China’s property market is in for a 20 percent fall next year starting in March or April. The forecast comes based on measures the China central government is undertaking to cool the property market. This is likely to see capital for real estate developers sharply contract in the first quarter of next year.
On Friday, China increased the reserve ratio banks must hold up 50 basis points, effective on the 29th November. This is the fifth such rise this year on top of a range of other controls, designed to tighten the amount of capital available to China’s overheating property market and to reduce the rise of debt. In June, Liu Jiayi, head of China’s National Audit Office wrote in an annual audit report that “The scale is large, and the burden is quite heavy” reveling some of China’s provinces have serious debt problems.
James Chanos from Kynikos Associates said in an interview with CNN’s Fortune Magazine that China is in “uncharted waters” with 60 percent of the economy dependent upon construction, a level almost unheard of. After the GFC, China turned to property investment to achieve its growth and now is “relying almost solely on property investment to achieve that growth” according to Chanos.
In August we reported on a story that 64.5 million urban electricity meters recorded zero electricity consumption over a 6 month period earlier in the year. Based on these numbers, it is predicted China could house 200 million people in these empty apartments. This should come as no surprise as in April, we reported on a China Reality Research report suggesting nearly a fifth of all recently sold properties were kept vacant.
Late last year we also had a post on Ordos, an entire city built by the government in 5 years to house 1 million people, the only problem is it’s empty – No one lives there.
With much of China’s construction industry demanding resources, the construction bubble in China has been fueling increased appetite for commodities from Australia and Brazil. Chanos believes these two countries will be hit the hardest, with the United States being the most insulated from the fall-out while also commenting that it’s “Interesting that the only other countries experiencing a property boom besides China is Brazil and Australia”.
During an address to a business lunch in Perth on Thursday, Reserve Bank of Australia Deputy Governor Ric Battellino said Asia represented “a very favourable global environment for the Australian economy” saying China and India were going through development phases where steel use was very intensive.
“In the past, other countries have taken up to 20 years to move through this phase”
“It is likely that China and, more particularly, India will have strong demand for steel for quite some time.”
» Property prices to drop 20% next year: report – The China Daily, 21st November 2010.
» Chanos: China’s treadmill to hell – CNN, 12th November 2010.
» Resources boom to run for 20 years, says Reserve Bank – The Herald Sun, 21st November 2010.
I wonder how true the statement about all of China’s growth being out of property development? You wouldn’t have thought that ‘real’ factory output for consumable goods would have grown that much with the bulk of the Western World mired in Recession for the last two years. When China stops building, China will stop buying. There are many naive Australians that think that even if growth in China slows, then India will save us. Truth be known however, that India is a good 15 years behind the economic cycle then China is – and the recent Commonwealth Games proved that they would struggle to organise a drinking session in a brewery, let alone a fully functioning commodity consuming economy.
However, the comment that Brazil and Australia have the only two housing bubbles in the world might be incorrect though. I’m over in NZ at the moment, and property prices are still very high over here and there is no real mining industry here – or does AUS money play into this?
The only way we are likely to head from here is down – Would it be possible that China might actually engineer a property collapse to ensure that investment is channeled into production enterprises that bring its economy forward in the long term instead of property speculation ?? It would be so pleasing to see an economy have the balls to do this, and I suspect that given China doesn’t really ‘elect’ a government, and therefore doesn’t have to ‘please’ society, they may just be able to pull this off.
hmm so many mixed reports. i was only reading a few weeks ago that china is still buying minerals from us and it is unlikey to stop.
India won’t save us, take a look around your home, what country makes most of the stuff you have? China……
A nice article today :
http://www.news.com.au/money/property/rising-interest-rates-add-to-homes-stockpile/story-e6frfmd0-1225958199749
Keep building up that glut boys….. and I bet a lot of agents now are telling complete lies and not report the true extent of unsold homes and failed auctions so the stats may be even higher behind closed doors.
I read somewhere that the Chinese for some reason just buy buy buy when it comes to real estate even if the numbers make no sense at all…… they must be worse investors than the average Joe is here…. I guess they just like taking their gambling much further, but then they have no history to learn from as far as busts are concerned, the Joes over here do!
@AverageBloke,
Does anyone know, or can point to information on how much wealth Chinese mineral purchaces contributes to the Australian Economy? In terms of taxes and salaries? (Questions not directly pointed at you AverageBloke, just following on from you). Are there flow on effects that makes wealth for people here from this?
I ask cause Australia has now experienced twice in its’ history, a Government (or elements within) that see these resources and think, wow! look at the money in that. In my life time it was Rex Connor under Whitlam (1972-1975), and former Prime Minister K. Rudd. Both individuals were disposed of, and Labour nearly lost Government this time around cause of it.
Since then I’ve wondered what Australia’s relationship with the resources beneath the ground here are really about. The credit fuelled economic boom we just came out of, we were told was because of American consumerism, when that started to dwindle, it was China’s intense resource consumption. South Americans, Canadian, and Indonesians were all told the same thing.
I have to concur with ya’ AverageBloke, so many reports, what’s going on here?
We should all be thankful that the RBA has such asute knowledge of the future!