Thursday, April 21, 2011

Chinese property prices dropping faster than Dubai two years ago

As predicted in this blog the Chinese property bubble is starting to burst. Read blog entries here & here for why.

From Arabian Money:

House sales in major Chinese cities plummeted 40 per cent year-on-year in March, according to the China Index Research Institute. And the price of new homes in Beijing slumped by 27 per cent from February.

The speed and scale of this housing slump is way ahead of Dubai two years ago, where prices fell by around 50 per cent in six months.

Sales slump

Chinese land sales fell 21 per cent quarter-on-quarter to 4,372 plots in 120 cities in the first quarter of 2011; 1,473 plots were for residential projects. The average price of floor area per square metre in the 120 cities dropped 15 per cent month-on-month.

This is the initial phase of a typical property slump: sales dry up and prices fall, albeit not normally this fast. The next phase is mortgage defaults and banking losses. This compounds the misery by restricting new loans and forcing further price falls.

Given that real estate and construction comprises more than 50 per cent of GDP in China – compared with around 30 per cent in Dubai at the peak of the boom – then a housing crash will surely mean a collapse in GDP.

All the commodities that China has been importing by the ship-load must slump as a consequence, and such is the importance of this demand to the price of these commodities that their price will also fall sharply.

But housing in China is overpriced by 60-80 per cent on normal income ratios which leaves the whole banking sector exposed. Dubai banks are only just emerging from a two-year recession. Is this what we should now expect in China? on

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