China’s property bust deepens


The WSJ has some nice texture on the shifting psychology of the Chinese real estate market using the example of Ningbo, a city of 8 million people in the fraught province of Zhejiang. Recent targeted easing has tried to lure back buyers but in the case of Ye Zhengwei:

“I wouldn’t buy another home even with the loosening of restrictions,” said Mr. Ye, who bought his first apartment in 2012 for 14,000 yuan ($2,250) per square meter. Now, a developer is offering a comparable home nearby for 25% less.

“I’m a victim of oversupply,” Mr. Ye said.

Property developers face a view among consumers that Chinese real-estate prices have peaked. Potential buyers are holding off on purchases.

…”The downturn this time is more serious compared to 2008 and 2011,” said Barclays Bank analyst Alvin Wong.

Recent instructions to lend more mortgages do not seem to be fairing well:

…Xiang Songzuo, chief economist at Agricultural Bank of China [said] “Now, what you’re hearing from banks’ local branches is that ‘we just don’t think the property is worth that much money anymore.'”

…Some housing agents said they recalled the 2011 downturn with fondness. Many home buyers saw the slump as a buying opportunity and approached agents about circumventing curbs on buying second or third homes,

“There are no such requests now,” said Huang Heng, a sales agent in Ningbo.

Standard Chartered also adds to the picture after a recent tour of China:

We toured a large shopping mall near the south train station in Nanjing, which is by no means remote. Nanjing is the capital city of Jiangsu province, which is the second largest province in China in terms of GDP output. Nanjing is a leading Tier 2 city.

This visit was not on our agenda, but it was highly recommended by a seasoned property researcher based in Nanjing. The whole mall was a sprawling set-up. We did not do a one-by-one count, but we estimate that there must be more than 100 shops on each floor and 500 shops in total, if not more, in the four floors. We noticed that the majority of shops (except for a few facing the streets) are still empty rooms, as they have never been let out. Through the locked glass doors, one could clearly see that the rooms were still empty and remain the way they were handed over to the buyers by the developer a few years ago.

This case illustrates the danger of overestimating demand combined with the lack of commercial planning/positioning.

…We also met Centaline’s property researchers. They believed that the number of property transactions year-to-date is down 10% YoY nationwide (though the official numbers show a decline of 5%), with Tier 1 cities showing a 30% fall, Tier 2 showing a decline of 8-10% and Tier 3 showing a flat change. YTD new starts were also down 10-15% YoY (partly because of the high base last year). They believe that property demand would continue to slow down in 2014 and 2015…

There is better news from UBS via FTAlphaville which provides a couple of useful charts that calibrate the aggregate value of the mounting targeted stimulus measures that China has undertaken so far this year:


Some of this railway and shanty town renovation spending was locked in earlier anyway so I’m not sure I’d described that as stimulus.

Anyway, the amount is modest even if some of it will help offset to blow to bulk commodity demand from property. But it isn’t enough to turn it around, which is the whole point, really.

David Llewellyn-Smith
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  1. A few extra malls in Sydney that are not controlled by the mall oligopoly would not go astray.

    An empty or shop or two gives more leverage to retail store owners at lease renegotiation time.

    Lower rents lead to the chance of lower prices.

    • How low do you need to keep pricing to maintain demand for physical retailing ? I suspect, regardless, that if it weren’t for the constantly flowing tap of wide-eyed, hungry immigrants, developed consumer driven economies would be in the throes of a protracted melt in retail/commercial property globally, the root of which lies in the fact that development of retailing capacity has outpaced prospective demand as the demographic curve slopes lower and the pool of un-satiated desire for superfluous consumables continues to drain.

      There are just not enough native, mindless, under-40 consumer droids left to buy all of this shit, not enough confidence in future incomes to pay down the extended credit. The last drop of our base consumer desires has been squeezed and extracted and gulped down by investment bankers and CEOs and shareholders. There is no more pent up demand for skinny jeans nor vinyl pants, gourmet teas, nor funky gadget covers, dumplings and juice bars, flat screen TVs, and brightly coloured stationery.

      It is entirely possible that we have had too much of a good thing, and away from the incessant noise of manufactured desire, people are yearning to step off the constantly spinning conveyer belt of mindless, redundant, consumerism. I don’t think any amount of new malls and lower rents can offset this.

      • I am not sure that the thirst for junk can be slaked but that is a slightly different issue to lower prices.

        I would prefer we have lower prices of all goods – essentials and less essential – sheep skin undies etc and attack droid consumerism as a separate special mission.

        I am lucky that most of my past exercises in mindless consumerism have all been digitalised. Now the shed is full of boxed up relics of impulses past.

        Anyone need a CD single of the ‘The winner is Sidey-nay’?

    • In regard to available retail space I’ve noticed a trend in my area.

      A lot of multi-storey apartment blocks are being built along the tram line corridors of inner northern Melbourne. They always put retail places at street level.

      Some of these are still for lease/sale many months after construction has finished.

      There are also older shopfronts along the same routes that are emptying out.

      These areas have reached cafe saturation point so I’m really not sure what is going to go in there. Another bicyle shop?

      • Cheap office space for the local ‘hipsters’ who don’t want to become corporate tools.

  2. Next soccer world cup in China.

    a few billion dollar stadium and hotel investment will turn it all around !

  3. You know what happens once the downturn gets traction!

    No one buys for fear of catching a falling knife, new starts stop, employment runs off over 18 months, paradox of thrift kicks in for those with jobs, retail gets hit as unemployment increases and becomes the second leg down, recession, currency falls, interst rates fall, and they hope exports rise to engender a recovery in emloyment and capacity usage.

    Where have I heard that before?

  4. General Disarray

    “I’m a victim of oversupply,” Mr. Ye said….

    That attitude is extremely irritating. He chose to buy. The price he paid should reflect what the property was worth to him.

    That’s the problem with bubbles. People looking for free money get in trouble then decide they’re a victim.


  5. China is started to look like Japan 30 years ago…. break-out your hyper-colour t-shirts and Vanilla Ice CDs everyone, it’s 1990 all over again!