Will Chinese banks survive now their housing bubble has burst?

brit1234

China's Banks No-loss With 50% Housing Price Drop?


Things are getting interesting in Asia. China grew fast through massive manufacturing and exporting to the world. Much of this created money from sales fuelled a giant housing bubble. Now this bubble has started to burst fear is spreading round the country.

The banks said they can withstand a 50% drop in house prices. However economists disagree saying a 20% fall was enough to close banks in the US.

Exports from China are declining, there isn't the demand internationally any more. On top of that wages have gone up so increasingly manufacturing is leaving china.

Have we another economic shock on the horizon caused by Chinese property, watch the video to find out:

http://www.youtube.com/watch?v=IGr_iqwcVlQ

grizzly1911

Perhaps they have grown to quickly and the down turn could also be swift.

I was surprised to see that 50% of their GDP was from real estate.

With the recession in the West looking long term then perhaps they will catch a cold until they can realign to lower worldwide demand.

Interesting reference to "mortgage slaves" for that is what the West has become.

John_Pierpoint

The Chinese are great savers and great gamblers.

I have a funny feeling that we have a generational divide - where anyone under 40 has not lived in a truly hard times.

So yes they will believe all the nonsense we have had in the English speaking West. "Dead money - you cannot go wrong - fill your boots - .............".

As 99.9% of people live in high maintenance flats in a "communist" :rotfl:country; they are owning a depreciation asset on a "short" lease (not sure of actual legal arrangements but perhaps a generation or two); So as in the West, there is a built in time bomb of old pensioners owning something that is no longer mortgageable.
Already there are "Mao" blocks - similar in age to the "desirable" "Stalin" blocks in the former Russian empire - these "Mao" blocks are not desirable, having shared kitchens and bathrooms, and inhabited by what would be "municipal tenants" in the West - my understanding is that they are sort of privatised and run as a block co-operative. Fortunately at only 4 - 6 stories they can be patched up with corrugated sheeting etc. Me thinks those, built in 6 months by 24/7 working, tower blocks will be a serious problem in 20 - 30 years time if the Chinese economy falters.

But hey with the foreign reserves that China has, these problems can be kicked down the road for 5 - 10 years, before China turns in Ireland. I don't see civil unrest amongst the "mortgage slaves" and ungovernable mega cities just yet in China.

John

(proud to live in a self build "s h a c k" - like the majority of my fellow world citizens)

http://www.dagongcredit.com/dagongweb/english/cra/fi.php

Flight2quality

Don't tell Bendix he still thinks the Global crisis doesn't include China.

brit1234

Chinese property bubble


The Chinese property bubble is an alleged ongoing real estate bubble in residential and/or commercial real estate in the People's Republic of China. The phenomenon has seen average housing prices in the country triple from 2005 to 2009,[1] possibly driven by both government policies and Chinese cultural attitudes.
High price-to-income and price-to-rent ratios for property and the high number of unoccupied residential and commercial units have been cited as evidence of a bubble. Critics of the bubble theory point to China's relatively conservative mortgage lending standards and trends of increasing urbanization and rising incomes as proof that property prices are justified.


Evidence

For bubble

• Chinese property developers are now experiencing their own credit crunch due to Chinese government funding restrictions and fire sales are expected which will reduce prices rapidly [2] and individual property loans are also drying up [3]

• Significant numbers of vacant or under-performing commercial and residential properties[4][5][6] and the continued construction of property despite these facts[7][8], including an estimated 64 million vacant apartments.[9]
• High price-to-income ratios for real estate, such as in Beijing where the ratio is 27 to 1 years , five times the international average[10](27 to 1 is based on a double income household so 54 to 1 for a single income household of roughly 6,500USD/yr)
• High price-to-rent ratios for real estate, such as in Beijing where the ratio is 500:1 months compared to the global ratio of 300:1 months[11] Homes are readily available in the Minneapolis area for 100 times the monthly rent
• A weak secondary market for Chinese homes, with the ratio of secondary to primary residential property transactions at 0.26 for the first half of 2009 (four times as many new home purchases as secondary sales). Comparably, Hong Kong had a ratio of 7.25, and the U.S. had a ratio of 13.45.[12]
• Chinese companies in the chemical, steel, textile and shoe industries opening real estate divisions, expecting higher returns than in their core businesses[13]
• Residential housing investment as a share of China's GDP has tripled from 2% in 2000 to 6% in 2011, similar to the peak of the U.S. housing bubble.[14]

Against bubble

• Home prices slowing or falling in Chinese cities[15].

• Trends of increasing urbanization and rising incomes[16] in China that could continue to support real estate prices
• Comparatively conservative mortgage lending practices, particularly in contrast to those at the height of the United States housing bubble[17]

City statistics

• Shanghai

• • Real estate prices increased by over 150% between 2003 and 2010[18]
• Tianjin
  • Projected to have more prime office space than can be absorbed in 25 years at the current rate[19]

Expert opinions Supporting bubble theory

• Standard & Poor's has downgraded its outlook for China real estate development sector to negative from stable, following a tightening of credit conditions in the country and slower sales.[20]

• Cao Jianhai, professor at the Chinese Academy of Social Sciences, who was quoted in an April 2009 report saying "Prices may not fall in the near term but I expect a collapse starting next year, followed by many years of stagnation."[21]
• Andy Xie, independent Shanghai economist, who was quoted in a March 2010 report saying "China's property market is a massive bubble."[22]
• Zhang Xin, CEO of Beijing real estate developer SOHO China, who was quoted in a January 2010 report saying "We don’t really have a view on when it will end; [but] we do have a view that this is a bubble."[23] Ms. Zhang does not expect a significant drop in pricing.

Opposing bubble theory

• The World Bank, which said in a November 2009 report that Chinese home prices had not outpaced increases in incomes on a nationwide level, therefore dispelling worries of a looming bubble.[16] However, in its March 17, 2010 quarterly report, the group said China needed to raise interest rates to contain the risk of a property bubble.[24]

• On April 6, 2011 the Economist Intelligence Unit’s Access China service released a follow up report to the October 2010 report ‘CHAMPS: China’s fastest-growing cities’ entitled ‘Building Rome in a day: The sustainability of China’s housing boom.[25] The report forecasts the population and average income in close to 300 Chinese cities, and the subsequent demand for housing in China which during the next decade. The report states that ‘with China’s property market being an important global economic indicator, China’s housing boom will present opportunities for investors in sectors such as furniture, cars and building materials.’ Regarding China’s urban population, the report forecasts that between 2011 and 2020 it will ‘increase by 26.1% or over 160 million people, while urban per head disposable incomes will increase by 2.6-fold to 51,310 RMB (about US$7,500 at current exchange rates).’[26]

Alleged causes

• Low interest rates[27] and increased bank lending,[28]

• beginning in 2003 under Wen Jiabao which allowed cheap credit for the construction and purchase of property while making competing debt investments less appealing
• Local government reliance on land sales for income (accounting for up to 50% of revenue), incentivizing the continued sale and development of land[29]
• Limited access to foreign investments for Chinese citizens, increasing the appeal of domestic investments such as property[30]
• Spending from the China economic stimulus program finding its way into real estate[23][31]
• Cultural pressures encouraging home ownership, particularly for men seeking a wife[32][33][34][35]

Government response

In July 2011 the Chinese Government raised interest rates for the third time this year [36]
A new nationwide real estate sales tax was introduced in China in late 2009 as a measure to curb speculative investing.[37]
In early 2010, the Chinese cabinet announced it would monitor capital flows to "stop overseas speculative funds from jeopardizing China's property market" and also begin requiring families purchasing a second home to make at least a 40% down-payment.[38]
A mortgage discount for first-time property buyers – which had offered fixed, 5% 20-year mortgages at just above 4% – was also eliminated.[22]
In early 2011, Beijing banned the sale of homes to those who have not lived in Beijing for five years. Beijing also limited the number of homes a native Beijing family could own to two, and allowed only one home for non-native Beijing families.[39]

http://en.wikipedia.org/wiki/Chinese_property_bubble