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Biggest Debt Bomb in History

China Housing Market Crash, Shanghai Homeowners Smash Showroom in Protest of Falling Prices

Housing-Market / China Economy Oct 28, 2011 - 06:01 AM GMT

By: Mike_Shedlock

Housing-Market

Best Financial Markets Analysis ArticleThe property bubble in China has finally burst. Denial has turned to anger as Shanghai Homeowners Smash Showroom in Protest Over Falling Prices

A group of around 400 homeowners in Shanghai demonstrated publicly and damaged a showroom operated by their property developer after the company said it cut prices. Home buyers had wanted to speak with the developer to refund or cancel their contracts but were unsuccessful, according to local media. One report said the price cuts exceeded 25% per square meter.



The local media reports said an unspecified number of people were injured.

Chinese media separately reported that another group of Shanghai homeowners gathered on Saturday to speak with Longfor Properties Co., after it dropped asking prices to 14,000 yuan per square meter from 18,000 yuan per square meter at a residential development in the city’s Jiading district.

The Shanghai property-owner demonstration found little support on China’s Internet, where most still expressed worries that housing prices are too high.

22% Drop Overnight

The drop from 18,000 to 14,000 yuan is a 22% overnight drop and that is just a down payment on the carnage that is coming.

Housing Math in China

  • 18,000 Yuan per square meter is about $2,835 per square meter
  • One square meter = 10.7639104 square feet
  • Cost per square foot = $2,835 ÷ 10.7639104 = $263.38 per square foot

In downtown Shanghai, the price is 48,000 yuan per square meter or roughly $696.77 per square foot.

I am told these are for roughly finished units (no carpeting, appliances, etc), just stark bare units.

For more on absurd Downtown Shanghai property prices, please see Property Developers Hurting in China; New Homes Sales Down 50% in Shanghai; Preposterous Prices Won't Last; Commodities to be Hit in Building Slump

Protests Hit China as Property Prices Fall

Yahoo! Finance has additional protest details in Protests hit China as property prices fall

Hundreds of angry home buyers launched a series of protests in China's commercial hub of Shanghai this week, as owners decried falling prices for their properties, state media said Thursday.

In the latest incident, some 200 home owners on Wednesday besieged the sales office for a project of leading developer Greenland Group, demanding refunds.

"We require a refund because the loss we are suffering now is too great for us to afford," the Shanghai Daily quoted a protestor as saying.

He paid 17,000 yuan ($2,678) per square metre last year and claimed the developer had cut the price by around 30 percent to boost sales.

In a another incident, 30 home owners stormed the sales office of a project of Hong Kong-listed China Overseas Land & Investment Ltd. on Wednesday, the Global Times said, repeating a similar protest from over the weekend.

Demand for apartments has been falling after authorities, fearing a property bubble, banned the purchase of second homes, increased minimum downpayments and trialled property taxes in some cities -- including Shanghai.

At the same time, property developers have been hit by a lack of funds, as the government hiked interest rates and restricted bank lending to rein in surging inflation and bring real estate prices into line.

Ratings agency Standard & Poor's expects China's property prices to fall by 10 percent nationwide over the next year as the measures take effect.

S&P 10% Decline Prediction is Hugely Understated

Prices in many places are already down 20 to 30 percent and things will get to the 50 t0 70 percent decline mark before this is over.

"Twilight Zone" of Phony Accounting and Shadow Money

MarketWatch says Watch out for China’s ‘freak’ economy

Ten years ago, homes in Shanghai sold for about six times an average family’s income. Today that’s 13 times. Shenzhen has gone from five times to 14 times. These are off-the-charts absurd ratios. This is a bona fide mania.

And it works fine until the music stops. Where are we now?

Prices have started falling. Now, fewer than 46 of 70 major cities saw prices stall or decline in September, reports the National Statistical Bureau. As recently as January the number was just 10.

In the past two and a half years, China has witnessed a staggering credit bubble. Total lending has come to about $7.8 trillion.

To put this in context, that is twice the entire net government debts of the European so-called “PIIGS” — the troubled countries of Portugal, Ireland, Italy, Greece and Spain — put together.

An alarming report from Schroders said Chinese banking operates in a “twilight zone” of phony accounting and shadow money and it’s all coming apart. “Almost half of all credit creation in China is off balance sheet,” wrote the team at Schroders.

They think this situation could unravel “over the next three to six months,” producing a huge crisis with international implications. Most Chinese banks, they predict, will end up as “zombie banks.”

Hard Landing Coming

The Financial Times reports China property developer warns on price falls

China's largest real estate developer believes the country's property market, a key driver for the economy, has turned and expects conditions to worsen in the coming months as sales prices volumes decline further.

China Vanke, the country's biggest developer by market share, said government efforts over the past year to rein in soaring prices were having a severe impact on the market and developers were being squeezed after sales volume in 14 of the country's largest cities halved in September from a year earlier.

A 30 per cent drop in property prices would precipitate a collapse in fixed investment in China and the country's investment-driven economy would experience a so-called hard landing after years of annual growth above 9 per cent, according to UBS economist Wang Tao.

Property investment accounts for more than 20 per cent of total fixed investment in China and UBS estimates almost 30 per cent of final products in the economy are absorbed by the property sector.

"A property-led hard landing scenario is quite likely in the next few years, even though we do not think the property market is about to collapse now," Ms Wang said.

Debt-laden provincial governments in China rely heavily on land sales for revenue and have poured investment into commercial housing projects in recent years.

These local authorities also account for up to 30 per cent of all outstanding bank loans, many of which are collateralised by land and housing developments, so a collapse in the property market could have a devastating knock-on effect on the financial system.

The property bust is underway in China and will spread from city to city just as it did in the US. No city will be immune and commodity prices will be smashed in the downturn.

By Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management . Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

Visit Sitka Pacific's Account Management Page to learn more about wealth management and capital preservation strategies of Sitka Pacific.

I do weekly podcasts every Thursday on HoweStreet and a brief 7 minute segment on Saturday on CKNW AM 980 in Vancouver.

When not writing about stocks or the economy I spends a great deal of time on photography and in the garden. I have over 80 magazine and book cover credits. Some of my Wisconsin and gardening images can be seen at MichaelShedlock.com .

© 2011 Mike Shedlock, All Rights Reserved.


© 2005-2015 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Gordan Finch
07 Nov 11, 17:21
Fraud and Corrupt Polititians

We have Democracy when EU leaders allow it.

This explains why the EU experiment, and the Euro has failed, (we are being lead by Dictators)

The EU is a dictatorship, where the German and French leaders do not allow democracy. The threat made to Greece’s Prime minister, when he was told quite clearly Greece would receive no further Money. If a Greek “referendum” was held is outrageous, this is gun to the head diplomacy not democracy, Greece and its people have the right to a referendum. Just like the public majority in Britain who wanted a referendum on the Lisbon Treaty, before the prime minister forced it through.

Governments are printing money to create hyper inflation, deliberately” to lower its debts. The revaluation of the British pound and US Dollar is a devaluation of your money. What this means is “your bank savings and pension will be worth peanuts. (£1000, will be worth (£250) or less by 2013.

The EU will just print more Euros; these are irrevocably fixed, “with a fraudulent value against other currencies. This has the effect of exchanging £pounds for peanuts, whenever you trade with Euro member states. And the paymaster general Germany, who lost the war, will win the battle and thrive on your £pound or §Dollar, while you shell the peanuts.

Britain is being fed a daily dose of hype about the EU being an important export market, but is it, Britain is the Europeans Unions most important customer, each BMW and Renault sold in Britain means less cars made in Britain and lots of peanuts to choke on while Britain is being filled with Frances illegal immigrants.

The Euro is massively overvalued and everyone knows it, the next bailout protest will force governments to act, proactively and admit the single currency was a mistake. Since it has become clear that EU officials expect the peoples 99% to pay for the their mistake, while EU officials pay no national taxation. Poorer countries will now suffer poverty insolvency hyperinflation immigration to lower wages, and tax rises. Just so the 1% can save the Euro and their obscene pride.

But this may now all is to late for the 1% to act, they are clearly prepared to destroy Greek Democracy and wreck the Greek economy. Than lower taxes or devalue the Euro allowing it to find its true worth ( 63% of what its concocted value is now. But even now as they are prepared to self-destruct the single market for their pride and tax-free status it may now be out of their corrupt hands.

Italy may now decide the future without Berlesconi, now its Bond spreads are back at the level of intervention and bailout. Just how far Brussels officials will go, will soon be apparent in defence of its unbridled privileges, at the expense of the 99%.

This 1% and similar examples of corruption is why wall street protesters—the general public the 99% are so intent on rooting out the corruption. Its not about capitalism, it is about fraud and corruption and money in black plastic bags, (being paid to corrupt career politicians by corporate giants, the crooks in suits for favours, itsfraud.


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Biggest Debt Bomb in History