Run on Wenzou real estate

Wenzhou is a city famous for producing lighters.  It also produces many real estate speculators who have been buying properties everywhere from their home town to Hong Kong, and probably as far as Dubai.  Now in their home town, however, they are scrambling to sell their real estate holdings.

NBD reports that the rush to sell started probably two weeks ago.  The selling pressures started with two groups: cash-strapped speculators, and cash-strapped business owners

One speculator was a shoemaker.  He borrowed money from a bank for his business, but much of the money ended up going to the real estate market.  As the real estate market cools amid increasingly aggressive curbing measures and monetary tightening, he had to borrow money from non-bank institutions (that basically includes loan sharkspawnshops and others) at very high interest rates.  Finally, he decided to sell his property and cut prices.  Even after price-cutting, however, most buyers were not serious.

Many business owners are also selling properties to save their own businesses as bank credit is very tight, and non-bank credit has a very high cost, so selling properties is a better choice.  One real estate broker said that a business owner is selling a RMB80 million townhouse, and 2 days ago the owner of this house told the broker that because his company needs cash urgently, and as bank loans have not been approved, he was willing to cut the price by RMB5 million.

The selling pressure seems to be generating panic, especially for those who are waiting to sell as buyers do not seem to be very interested.  That’s not surprising, after rounds and rounds and price curbing, purchase restriction, and monetary tightening, it is much harder for speculators to own multiple properties, and mortgages are harder to get.  Thus there is little wonder that sellers are so desperate to find willing buyers.

There’s no saying that Wenzhou is representative of things happening in broader China, but it is discouraging for the outlook of Chinese real estate.

Comments

  1. The eastern Chinese housing is in a bubble, and the Chinese will tell you that, so I guess this is the start of a correction down. From what I saw housing in the centre had slowed, and not much activity on any building site we saw.

    Definitely finance other than shadow is hard to get and that is across the board, and not just for housing. This correction had to happen.

  2. RMB5m off a RMB80m property represents a price reduction of 6.25%.

    Have a look at Refinder, and you will see that price discounts of this order are occurring throughout Australia on a daily basis.

    I don’t dispute the main thrust of this article, but I hardly think that a 6.25% reduction in asking price represents panic territory.

    • Also Sprach is a China Bear and in my view of some stories from that site are anecdotes with a few figures thrown in – a little soft.

      6.25% reduction would be something most Australian home sellers would be happy to accept.

      • 31dk is a China bull.

        What does that statement achieve?

        Nothing.

        Zarathustra has recounted a curious tale of a local Chinese event.

        Why do you feel the need to marginalise him?

        • No I’m not a China Bull! I’m a China Hopeful.

          Marginalise him – you jest. Look at the barbs thrown by several commenters at MB in the direction of Pascoe, Joye, Bloxham, Gittins!, Carr et al.

          I’ve read AlsoSprach for some time – not so often now (in fact only here) as his bearish tidings became repetitive and are yet to happen.

          • the intolerance of the left shine through again on this site..

            freedom to express opinion as long as it agrees with your own, correct?

        • “Pascoe, Joye, Bloxham, Gittins!”
          .
          All of the above are mainstream commentators with the corporate media machine supporting and publishing their views, even in the face of stark evidence/data painting the opposite of their view.
          .
          Zarathustra is a blogger.. FFS. Apples vs Apples please.

        • H&H – there are lots of blogs out there detailing curious events in China – but as we are on real estate I rather liked this post:

          http://shanghaiscrap.com/?p=6637

          I think it’s the optimism – taking care of the model representative of the vision for Shanghai – I hope it they pull it off.

      • Discredit, discredit, discredit…

        That is the modus operandi of Fanboy. If he reads anything he doesn’t like, he discredits the source, or launches a personal attack.

        Also Sprach is based in Hong Kong. Pettis and Chovanec are economics professors at mainland universities. I reckon they know a thing or two, but they’d all be classified as “China Bears” by Fanboy.

        • Do You Feel Lucky Punk?

          yeah whatever…

          Most objective readers would have a look at an article that has a headline “Run on Wenzou real estate” and note that it is data free other than an anecdotal drop in one transaction of 6.25%. Your rush to criticize julius and 3dik for pointing this out has all the hallmarks of bullhawkian intolerance.

          • Fanboy didn’t criticise the article, he discredited the source.

            Also Sprach is a China Bear and in my view of some stories from that site are anecdotes with a few figures thrown in – a little soft.

          • Do You Feel Lucky Punk?

            So are Also Sprach’s articles anecdote driven or data driven?

            If the former isn’t 3d1k making a reasonable call? You may call it “Discredit, discredit, discredit…”, for me I like to see data to support whatever opinion is being presented (and from there we can debate interpretation of the data if needed).

          • Punk, the problem with Chinese data is that, in the words of their soon-to-be President, they are “for reference only”.
            .
            We have come to rely on anecdotes from the ground instead of armcharists like Pascoe.

          • To say ‘some stories are anecdotes with figures thrown in’ is a fair call. Not ALL stories, SOME.

            Recall the recent Unsold Housing Stock in Beijing story (with a few figures thrown in) – a quick comparison with similar stats in Perth appeared to show that Perth had the bigger problem!

            China Bears tend to see the negative in anything and everything…

          • The implication was clear Fanboy. This information was not to be trusted because it comes from a biased source.

            By all means criticise the article for being anecdotal and light on data, but you went straight to discrediting the source.

            Also Sprach posts on most of the Chinese data releases and has lots of nice charts so its hardly a data-free zone.

            Admittedly he has a bearish bias but that’s no reason to assume everything he posts is without foundation. His bearish view may well turn out to be accurate!

        • I had never seen Chovanec quoted here until after I linked to him – I seriously doubt you had heard of him prior!

          If you view the above article as a serious piece warranting attention you’ve been immersed in MSM for too long. Ah but I know that – as you are endlessly quoting and continually criticising various MSM correspondents.

          I give credit when credit is due!

          • Dumb_Non_Economist

            I’d have to say, as much as it hurts (I’m weeping now), I’d have to agree with 3d1k in general.

            In the meantime however, I have a question for 3d1k! How does a extremely hard working, fully stressed miner boy get to find the time to view and comment on not just this site, but others as well. Does your employer know how his 200k+ employee spends his time? Just kidding miner boy!

          • The resource sector is a good employer…

            And I’m multi-skilled (I can keep more than two screens open at a time!).

  3. Julius,

    Interesting, I am sure those trying to pay back the loans to grey/black market finance would see this quite differently particularly with a falling asset(s) and increasing costs to pay back at higher rates of interest on a deflating asset.

    Doubly screwed I would suggest.

    I think your being a bit Aussie centric and missing the point – China is different!

    😉

    • TM,

      No, not being Aussiecentric.

      I did say that I did not dispute the main thrust of the article.

      I just don’t think that a 6.25% discount is indicative of panic.

      If you’re about to have your private parts lovingly examined by a Triad member, I think you’d be going in a bit harder than 6.25% 🙂

        • This bit 😉

          “If you’re about to have your private parts lovingly examined by a Triad member, I think you’d be going in a bit harder than 6.25% :-)”

  4. Here is a news in Chinese.

    It says it’s happening in others cities, not just WenZhou. Some new properties in NingBo are offering 33% discount.

    I think it’s the turning point of price drops. Wonder if the gov will start to panic about a hard landing.

    • Wow that was an intersting page… excuse me but the imagery was bizzare let alone the content!

      Thank go for Google Translate.

    • Forgot about Google translate. 😀
      Well, Google translated “6.6折” in the headline into 6.6% discount, which is, WAY off…
      It actually means 66% of the original price, so 34% discount.

  5. Since Australia is different from the rest of the world when it comes to real estate prices, the question is how does this affect Australia?

    Why I ask this question, media companies and individuals have reported in the past that main land Chinese are buying real estate in Australia because they cannot afford the prices back in China?

    Original I thought that these media companies and individuals were trying to fire up the xenophobia within Australia when they made these comments.

      • Funny that – RBA and Treasury keep telling me that China will have a 20-year boom.
        .
        Now, in face of that, it is a bit silly of the Chinese to try and get capital out of the country. Didn’t they get the memo about the 20-year boom?

        • Great point and since a mate at Austrade told me the China story was a whole lot of hot air, I always questioned why if China was the new leader, economic boom superpower etc etc, would supposedly so many be trying to do a runner?

    • I attended an auction in Mt. Waverley some 2 years ago. It was a nearly 1000sqm corner block, with an old house, ideal for subdivision and redevelopment. Towards the end of the auction there were two Chinese families aggressively bidding against each other and it was sold for well over $900K. The block has been on the market again in its original condition. Another Chinese investor that I know of sold his property some 2 months ago. Obviously it’s just two cases of the Chinese selling after our local market turned down. When I saw the former property on the market again I asked myself if it’s a symptom of domestic problems in China and people desperate for cash to prop up their businesses and investments at home.

  6. I hope high-rise Harry does not get to hear this news – Keep building up, Harry. If you build, they’ll come.

  7. At least the Chinese govt has the guts to reign in speculation. Our government could learn a lot from our Chinese neighbors… But instead, more pressing issues than an affordable roof over our heads such as carbon tax and nbn, occupy all political debate and money.

  8. Not a "true believer"

    Eventually you’ll be buying Chinese houses or condos for what you’re paying for their motorbykes or plasma screens. In fact you’ll get package deal where they’ll throw in a whole empty shopping mall, a skyscraper or a ghost city… he he he….

  9. Original Article – “but it is discouraging for the outlook of Chinese real estate.”

    How is real estate becoming more affordable discouraging?

    😉

  10. El Zorro Dorado

    The article is interesting and reflects what is happening in other parts of China as well. I’d question whether the facts support the start of a run on real estate either locally or more broadly; but it is just a question of time before a correction gets fully underway. But then again, so what? Corrections are cleansing and don’t last forever. We –as trading partners– should hope that local Wenzhou markets return to stability as soon as possible. I sense in some of the comments a snide hope that this may be the beginning of the comeuppance for those Chinese upstarts which have succeeded in growing strongly and getting wealthy…. Not only a snide thought but a forlorn one as well, as China will continue to rapidly develop due to the strong entreprenuurial character of its people. That’s not to say that big hiccups along the way will not occur. And we are probably moving towards a big one right now.