The Slow-Motion Crash Of The Chinese Real Estate Market

So the real estate market in China has started to move lower, at least it seems.  Certainly, not everyone is happy about that, as pointed out a few times earlier that apparently some buyers who bought new flats just months ago are now sitting on an unrealised loss as property developers cut prices.  More angry ones went on and protested against that, and smashed things in the sales office.

One particular property developer addresses this to this with an offer for future home buyers, according to HKET, to get the refund of the difference between the prices they paid and the market prices three months before delivery if the prices fall.  This is not something new, as I vaguely remember that Henderson Land (12.HK) did something similar to that in response to the 1997 Asian Financial Crisis.  So this developer sell flats with put options, which will be settled in cash, fantastic.

The cooling real estate market are not only making previous home buyers unhappy.  Agencies who are probably more concerned about transaction volume than prices have been struggling with the collapse of transaction volume.  Centaline (whose boss is a completely incompetent man as far as property market forecast is concerned) China division has closed 60 branches (or 15% of all branches) in Shenzhen according to Mingpao and fired about 1,000 employees, and 40 branches in Beijing according cnyes.com.  Again, this is not new, as Midland (1200.HK) has closed all their Shanghai branches in May, even though they bizarrely opened 11 new branches in Nanshan district of Shenzhen according to Sina News.  We wish them best of luck.

And for those bulls who are hoping that the government will come to rescue by easing policy, we are 1) not sure when that’s going to happen, and 2) whether it is going to be effective at all.  For the first part, the good news is that there are signs that selective easing is happening.  Late last week we have heard from various sources that perhaps China is really easing monetary policy selectively. Mingpao reported on Thursday that some of the banks in Beijing which have practically stopped extending mortgages have miraculously get loan quotas for mortgages.  That’s probably a minor thing and it is not certain at the moment how that is going to save the market, but it was enough to make equities investors excited for a few days.  The second part is more crucial: whether there will for sure be demand for credit.  If the downward momentum of the property market is established and recognisable, would anyone be very excited about buying a new home with borrowed money?  I doubt.  Of course, we don’t know yet whether the tide has turned decisively. 

And sometimes the rescue comes from where it is not expected.  Greentown (3900.HK) which was rumoured to be pretty much busted, was “rescued” by none other than Jack Ma, the Chairman of Alibaba.com, according to Sina News.  It is said that Jack Ma is a good friend of Greentown’s boss, thus he organised some group-buying campaign, and offered interest-free loans to employees.

This article originally appeared here: The Latest Look At China Real Estate Market
Also sprach Analyst – World & China Economy, Global Finance, Real Estate

  • China Real Estate: Banks Increase Mortgage Rates
  • China Real Estate: Beijing Market In A Stalemate
  • China Real Estate: 100,000 Apartments Waiting To Be Sold In Beijing
  • Beijing Real Estate Transaction Drops During Long Weekend
  • China Real Estate: Unsold Inventories Continue To Rise
  • The Anecdotes Of The Chinese Real Estate Bubble
  • Canada Real Estate Prices Driven Up By Chinese Buyers
  • Guo Shiping: China Real Estate Prices Will Drop By Half

 


Read more posts on Also Sprach Analyst »

NOW WATCH: Money & Markets videos

Want to read a more in-depth view on the trends influencing Australian business and the global economy? BI / Research is designed to help executives and industry leaders understand the major challenges and opportunities for industry, technology, strategy and the economy in the future. Sign up for free at research.businessinsider.com.au.