China’s property bubble set to burst?

With Australia’s iron ore miners being pulverised on the bourse today it might be time for some iron ore bear porn. Readers will recall the analyst Gillem Tullock from the recent 60 Minutes report on the Chinese property bubble. Well, here he is again, this time with Reuters, predicting that the whole nasty thing is set to come down in the second half of this year. Let’s hope he’s wrong.

51 Responses to “ “China’s property bubble set to burst?”

  1. Bob Sickle says:

    “Let’s hope he’s wrong”

    Why ?

    If it is going to happen better soon than later.

    • Charles Ponzi says:

      Yes, the sooner the better. The longer it takes to burst, the more pain we must endure in the future.

      • Revert2Mean says:

        Here’s someone who thinks the Chinese bubble will not burst.

        Dan Collins – China Is Moving Full Stream Ahead

        Dan Collins of the The China Money Report sees smooth sailing for the Chinese economy. He believes that much Western reporting that makes numerous claims of an economic bubble are gross exaggerations. The ghost cities are largely overblown. Most Chinese are cash buyers and even those that take out mortgages still put up 30 percent. China has become the largest trading nation in the world. Its currency is set to supplant the dollar over the next several years. Their main problems are inflation and the environment-which continues to rapidly deteriorate. Dan believes the best way for Americans to play the China story is by investing in Hong Kong. Right now HK dollar is pegged to the US dollar, but many experts expect that peg to soon break. That will lead to massive profits for those holding the HK$

        Download/listen

    • Phroneo says:

      Yes, and the sooner it happens, the sooner we can get our stupid bubble popped.

      I’m sick of how we have been brainwashed to see housing here. We could see two headlines:

      Grocery prices best in 6 months
      House prices best in 6 months

      Why do they imply two different directions?

  2. I would prefer a slow melt.

    • The Lorax says:

      The bigger the bubble the bigger the bust, and this is the biggest of them all. A slow melt is a tad optimistic in this case.

      I reckon what we’ll see is a crazy, zig-zag downward spiral as the Chinese authorities madly jump from the brake to the accelerator.

    • reusachtige says:

      I’m over slow melt.

    • Pfh007 says:

      HnH,

      I agree a slow melt is the best option but we haven’t seen any melting to date.

      If anything all we have seen is the debt permafrost form at a slower rate.

      A little more interest rate direct sunlight is needed to get us pointed in the right direction.

      George Harrison’s ‘Here comes the Sun’ is an ideal backing track.

  3. Felixfrost says:

    Houses and Holes,

    Is that because you own a house? Gen X late starters and Y are sick of waiting. Best to take the medicine and get back on track . . . than be on palliative care.

    • I do not wish to see the nation razed.

      • 3d1k says:

        +100 Unfortunately some of those above don’t understand.

      • The Lorax says:

        Perhaps we should have saved for a rainy day … Oh that’s right, you thought the money was better used in multinationals pockets.

      • 3d1k says:

        You refuse to acknowledge reality. Most amusing.

      • Labrynth says:

        The nation needs to be razed to clean out the waste and my God is there a lot of waste.
        When people are jumping over each other to pay $550,000 for a property but only receive $400 in market rent you know there is an issue.

      • waltK says:

        I’m curious to know if anyone has tried to draw a picture of what our economy would look like without our resources?
        Where would our dollar be?
        What industry would the majority of people be working in?
        What would be the average wage?
        Where would the all-ords be sitting?
        What would bank stocks be doing?

      • The Lorax says:

        New Zealand.

      • 3d1k says:

        Walt, impossible to imagine and not a scenario we would like to contemplate.

      • Bob Sickle says:

        Don’t understand what ???

        I certainly know a ponzi scheme when I see one.

        Some people here can’t see the forest for the trees as vested interests always get in the way of common sense.

      • 3d1k says:

        Bob – the flow on effects to Australia from collapse in China would pose enormous difficulties for the Australian economy.

        See, you really don’t understand! Read DEs primers (which should be highlighted for one and all to see on the sidebar…)

      • Bob Sickle says:

        The system is bloated 3D

        As people have said above we need a reset, either voluntary or when it gets beyond anyones control (which would be far worse)

        I could not give a crap about the flow on effect to Australia.

        There are lessons to be learnt here, but some people fail or refuse to learn.

        Your cheeleading would get you a job decked out in all that girly stuff at any leading sporting club here or abroad.

      • 3d1k says:

        “I could not give a crap about the flow on effect to Australia.”

        Well I do and that is the fundamental difference between our views.

      • GSM says:

        “I could not give a crap about the flow on effect to Australia.”

        I’m curious as to the background of someone who could post, with honesty, such a comment. Care to enlighten?

      • rob101 says:

        I would rather see gradual adjustment also, the problem with this razing is that the baby gets thrown out with the bathwater. A lot more damage is done than just to those who had it coming.

      • reusachtige says:

        The razing we had to have!

      • The Lorax says:

        None of us do, but our leaders decided to put all our chips on the Chinese construction sector, and if it busts, its going to be painful.

      • 3d1k says:

        But let’s not forget it has been marvellous along the way, we have been most fortunate to ride the tail of the Dragon.

        For mine, I would be very surprised to see an incoming leadership ‘allow’ destruction in the property sector particularly when growth remains tentative. Of course it may snowball ahead of them, but considering the laxness of imposition of these property controls and the very powerful interests of the property construction and steel sector I think it would be a foolhardy government that enabled collapse.

      • The Lorax says:

        Marvellous for you perhaps.

        Like I said above, I reckon we’ll see a zig-zag down as the authorities jump from brake to accelerator.

      • 3d1k says:

        Agree it not easy waters for the Chinese to navigate however I remain moderately optimistic.

      • Felixfrost says:

        I get that, but then again, having watched the UK ‘melt’ and seen that the real losses have been in income in lower income groups(particularly women), I’m not sure that it makes that much difference for the great majority whether we pop or fizzle.

  4. The Lorax says:

    With Australia’s iron ore miners being pulverised on the bourse today

    If you want a stark illustration of the switch from Holes to Houses you only have to compare the banks vs miners on the ASX since mid-Feb.

  5. Sean G says:

    As was discussed yesterday, it’s difficult to see a situation in which the Party DOESN’T WIN. The Party always wins, stuff the newly-wealthy middle class investors, they shouldn’t have become all greedy and Western in their desire for money and financial security.

    I can see these vacant apartments being confiscated with little or no compensation and given to the rural peasantry – all in the name of keeping the Chinese system stable. The Party can (and does) what it wants – they don’t operate under the same rules that everyone else does !

  6. Horizon says:

    I’ve said it before and Ill say it again, a burst property bubble in China MAY NOT be that bad for China enabling to redresses its wealth gap, hukou system, transition to domestic consumerism (increase in production of consumer items), proletariat contentment, corruption etc.

    The impact for Australia will be devastating as the mountains and mountains of excess property delay any further construction. That said – Australia is ALREADY in trouble with the inevitable decline in Ore happening right now in anticipation of this construction decline in stock pile draw downs doubled with the expectation of price falls through increased supply going forward.

    Massive increase in Ore production, decrease in construction, Ore will see around $80 this year.

    • The Lorax says:

      Of course it won’t be bad for China. A transition to consumption is exactly what they need.

      It will be bad for Australia, at least Quarry Australia. Hopefully there’s some life in non-mining exporters to lead the recovery.

  7. Bobby Fischer says:

    China is the bubble of all bubbles. Just a reminder of the key section from the 60 minutes piece the other day:

    http://www.zerohedge.com/news/2013-03-04/chinas-housing-bubble-goes-mainstream-america?page=1

    “Lesley Stahl: Are homes in China too expensive today?

    Wang Shi: Yeah.

    Lesley Stahl: Here’s a number I saw. A typical apartment in Shanghai costs about 45 times the average resident’s annual salary.

    Wang Shi: Even higher, even higher.

    Lesley Stahl: What does that mean for your economy if it’s just too expensive for the vast majority of people to buy?

    Wang Shi: I think that dangerous.

    Lesley Stahl: Dangerous.”

    What bubble? 45 x annual salary is the new normal… it must be a shortage surely. That’s what half the property perma-bulls on this website commenting daily tell us after all, that housing prices reflect ‘fundamentals’ based on SUPPLY and DEMAND.

    Yet, here we have entire empty cities with apartments at the bargain basement price of a few 100K a pop, in areas were people earn $2 a day. LOL

    Claw? Where are you son to explain this anomaly?

    • GSM says:

      Bobby,

      Your anomaly – solved;

      http://brontecapital.blogspot.com.au/2012/06/macroeconomics-of-chinese-kleptocracy.html

      “China is a kleptocracy of a scale never seen before in human history. This post aims to explain how this wave of theft is financed, what makes it sustainable and what will make it fail. There are several China experts I have chatted with – and many of the ideas are not original.”

      It’s not about the people or their wages. It’s ONLY about those buildings and the money being squirrelled away in the process of building them.

      • Horizon says:

        Without being too dimssivie there is nothing in that link not widely known and discussed ad nauseum, further I would suggest it wildly misses the mark on the theories of developmentalism.

        The level of corruption is well known in China, and has been stated here repeatedly by myself, Lorax,Ssean G and thanks to the info from MB, the Chinese elite know that the Chinese peasants know it too.

        There have already been riots in entire regions this week over disparity with telecommunications cut off and mass arrests.

        http://www.ft.com/intl/cms/s/0/603d7970-8bdb-11e2-8fcf-00144feabdc0.html

        The point being made is for the party to remain in power and the elite to keep their heads the proletariats MUST be satisfied.

        The vast swathes of corruption will be routed, the productive wealth returned to the people and we will have a reset – and those at the top will not get the chop.

        Boxer Rebellion 101.

        http://pearlsofprofundity.files.wordpress.com/2012/06/boxer-rebellion-2.jpg

      • GSM says:

        Horizon,

        Well aware it has been discussed before but Bobby asked the question.

        Of course the game in play is how long can the current Chinese elite maintain power in the structure of their system. I am not as idealistic about that as you seem to be in that at this time and the forseeable future I dont see the proletariat getting up. The game changer would have to be some kind of event involving food/water supplies causing a breaksdown of discipline generally in the security apparatus. I just don’t see it yet. Then again, maybe R2M’s CC manifesto will deliver?

  8. 3d1k says:

    This might interest iron ore analysts and China property watchers.

    Real-Time Signs of Emerging and Collapsing Chinese House Price Bubbles

    http://www.uni-hamburg.de/fachbereiche-einrichtungen/fb03/iwwt/makro/chinabubbles.pdf

  9. thomickers says:

    No one can defend China’s property bubble.

  10. Muzzer018 says:

    Why not they denied ours, this is how bad they can go.

    http://www.youtube.com/watch?v=wIf4LhaZTh8&feature=youtube_gdata_player

    Check out Canada