Chinese developers bring in security as buyers experience negative equity

April 5, 2014 admin China 12

Under the front page headlines of Guarding the global economy’s biggest risk, the Weekend Australian Financial Review provides us a chilling insight to the cracks emerging in China’s unprecedented property bubble.

The Financial Review’s Angus Grigg writes

Security guards, wearing army green, provide the first hint of trouble. An even dozen of them line the stairs leading to a sales office on the fringes of this coastal city in eastern China. It’s a tunnel of camouflage, which prospective property buyers must pass through before entering the main building. And that’s just the outside security detail.

Inside, a further 31 uniformed guards stand stiffly around the perimeter, while 10 bulky men in plain clothes occupy all the available chairs. It’s hardly the ideal environment to buy an apartment in the 23-tower development under construction next door.

In a desperate move to offload properties, developers have been slashing 30 per cent off sale prices – overnight.

This has created a raft of buyers who have lost all their life savings and are now underwater, even though their apartments won’t be complete for another 18 months. Many are starting to protest in the streets, and this has lead New Century to bring in security guards by the bus load.

Negative equity, usually associated with Ireland or Florida, is a phenomena almost never seen in the 30-year history of private property ownership in China. Guan and the 700 other buyers in the “Noble Garden” development are in this situation because New Century began slashing prices on March 21, in a bid to clear excess stock.

While the developer refused to talk to the Australian Financial Review, buyers speculate New Century, like a growing number of developers are going bad and need liquidity quick smart.

You can read the entire story here:

» Guarding the global economy’s biggest risk – The Australian Financial Review, 5th April 2014.

» GFC2 – Will it be made in China? – Who Crashed the Economy, 30th June 2013.
» How China Fooled The World – Who Crashed the Economy, 20th February 2014.




12 Comments

  1. Just watched a segment on ABC News showing bidding wars between Aussie property investors pushing property prices to record highs.

    Melbourne and Sydney Auctions have hit ‘fever pitch’ as Aussies scramble to position themselves with as many investment properties borrowed money can buy in the ready to front run and offload them to the tsunami of rich Chinese Communist Party Officials heading our way with suitcases full of new printed money.
    Looks like that pool of rich Chinese is about to dry up.
    Or maybe they are just a myth dreamt up by the Real Estate Industry to succour in more Greater Fools. Easily done, just edit in someone who looks Chinese at a bidding war on ‘Properties under the Hammer’

  3. It will be hard for the Party to control this and the Australian Govt and RBA have no chance when it begins here.
    Glenn Stevens and the Govt have lit a large fire under house prices and they seem intent to let it run, we might end up with the TOT, mining CapEx and a red hot RE market getting smashed in 18 months all at the same time.

  4. Here comes the next big 4 bank bailout. When the property market tanks, the big 4 will lose a large part of their equity as they hold 80% of mortgages. As 40% of their funding comes from offshore banks they will find it very difficult to borrow hence the bailout. Alternatively a bail-in may be required a la Cyprus.

  5. The reserve bank is already on to the inevitable.

    This in the news on Wednesday:
    http://www.smh.com.au/business/banking-and-finance/rba-calls-for-bank-levy-to-protect-depositors-20140402-35yre.html

    “The Reserve Bank wants Australia’s biggest banks and building societies to pay a levy to help pay for a fund that will protect their own depositors in the event of a banking collapse.”

    And this yesterday:
    http://www.theaustralian.com.au/business/economics/fitch-affirms-rating-warns-over-property-boom/story-e6frg926-1226874747119

    “FITCH Ratings has affirmed Australia’s triple-A sovereign debt rating, but warned surging house prices hold the potential to destabilise the country’s banks.”

    Alarm bells are certainly ringing.

  6. So a bailout is already an assumed outcome then. Might be a good time to get some bank shares.

  8. All these articles showing the governments incompetence and indifference to first home buyers and every Australians right, not privilege, to affordable housing not only strengthens the ‘DONT BUY NOW’ strike by many but the introduction of a ‘DONT VOTE FOR THEM NOW’ strike also, hopefully until politicians change their preference from supporting and making the minority banking, real estate and private investors industry rich, at the expense of the majority of Australians. These destructive and discriminatory policies only strengthens our intentions to play a more active role in the political decision making process and not stand by, watch and complain about it only. SPREAD THE WORD!!

  9. China property: In search of shelter – Financial Times, April 2nd.

    The towers that were to house 10,000 people stand unfinished and abandoned, a ghastly apparition looming over the Chinese port city of Qinhuangdao. Construction was halted when Deda Property Development, the real estate company, ran out of funds.

  11. Ah china. The BS salesmen of the century.

    We all saw this coming and what does it mean for Australia? Most of the Chinese buyers don’t have $5million to park in australian property so not much.

    What is worrying though is china is 20% trade partner.

    The US is a 10% trade partner.

    In the GFC which was ignited by housing being dumped we went into housing recession. We’ve all seen the graph of house price right before the govt stepped in with FHB grants, SMSF and foreign ownership laws. Saved australian house prices by the skin of their teeth! At the rate of decline we would have had a loss of 20-30%

    Now we are about to lose a trade partner double the size of the one we had in 2008. What do you thinks going to happen given the only people buying are investors. At lease in the gfc we had 30% FHB now we have 5%

    It’s going to be bad. Real bad. I would hold into your hats. Batten down and shift your assets into small gold miners, maybe some bonds, maybe some medical or education stocks.

    I definitely would NOT want to be the last person holding the Australian property hot potato this year…

  12. @admin – Off topic, but another REI spruik, via The Advertiser, from the leafy suburbs of inner Adelaide. A quick search will show Bill Waterhouse is employed by a major property valuation company here, but no mention of his relationship to the industry…YAWN

    http://www.adelaidenow.com.au/realestate/news/adelaides-leading-real-estate-agents-rate-fourth-avenue-st-peters-as-one-of-our-best-residential-streets/story-fni0ci8n-1226881428470

    http://www.linkedin.com/pub/bill-waterhouse/39/22/7b1

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