China Seeing Real Estate Squeeze

September 27th, 2011
in econ_news

slow-down-sign EconintersectBloomberg says that China’s property market may be reaching a “tipping point.”  China has been fighting inflation with higher interest rates and increased bank reserve requirements.  Some of the numbers presented in a September 23 Bloomberg/Businessweek article (link below) are such that one might wonder if the tipping might have already occurred.

Follow up:

Here are some of the statements from the Bloomberg/Businessweek article:

  • Land transactions in 133 cities tracked by Soufun Holdings Ltd., the country’s biggest real-estate website, fell 14 percent by area in August from a month earlier.
  • Prices of new homes declined in 16 of 70 cities last month compared with July, according to government data.
  • The price of land in Beijing slumped 76% in August from a month earlier.
  • In Guangzhou the price of land plummeted 53% from July to August.
  • New bank lending to property developers in the second quarter of this year sank to 42 billion yuan from 169 billion yuan in the first quarter.
  • Developer Dalian Rightway Real Estate entered preliminary restructuring talks with lenders after missing a loan repayment.

There are a number of concerns about the overall economy in China.  From Bloomberg/Businessweek:

Funding problems are just “the tip of the iceberg” and “sharp declines in property sales and prices are likely in the next two to three months,” said Shen Jianguang, an economist at Mizuho Securities Asia Ltd. in Hong Kong.

Policy makers may be too complacent about the economy’s performance, Mizuho’s Shen said, pointing to the deteriorating outlook for exports as Europe’s debt crisis deepens and the U.S. risks slipping back into recession.

The International Monetary Fund this week cut its forecasts for global expansion this year and next and said downside risks to growth are rising.

In signs China’s economy is cooling, a preliminary index of purchasing managers released yesterday by HSBC Holdings Plc and Markit Economics showed manufacturing may shrink for a third month in September, the longest contraction since 2009, as measures of export orders and output decline.

“The risk of China replaying the hard landing of 2008 is increasing as the property sector cools and exports weaken,” Shen said. “ I fear that once the real economy deteriorates and officials do loosen policies, it will already be too late.”

Read the entire article at Bloomberg/Businessweek.

Source:  Bloomberg/Businessweek

Hat tips to Roger Erickson and Warren Mosler

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