A string of bearish quotes today from the FT on Chinese property:
As China’s real estate slump began to hit sales at the Champs Elysées development in the picturesque lakeside city of Hangzhou, the company building it responded with a price cut.
…“People are returning to rationality,” says Chen Xuemei, sales manager at the Champs Elysées. “If they are starting a family and need a home, they will still buy. But people are no longer buying homes expecting to earn a big profit.”
“Previously parents told their kids: don’t squander your money . . . save it and buy a house. After you buy a house, save more and buy another house,” says Du Jinsong, property analyst at Credit Suisse, the bank. “Now even parents are saying: don’t buy houses any more – it’s not worth it. I think this is a very big change.”
…Wei Yao, economist at Société Générale, the bank, agrees. “A further slowdown in investment still seems inevitable”, she wrote in a recent note. “The most likely scenario is that property data may stabilise or even improve in the coming months thanks to the whole gamut of easing measures, but the recovery will probably grind to a halt entering the fourth quarter.”
…Mr Du fears that if the property market fails to bounce back quickly, the downward trend may become impossible to reverse. He says: “To me that is an early sign that interest in the market has definitely changed – maybe for good.”
That’s the MB base case. Fitch also appeared to reiterate the argument that support measures will not reverse the slump:
And if so, Investing in Chinese Stocks has a list of the provinces most at risk:
An Ifeng article has two lists, one that compares real estate investment to fixed asset investment, and one that compares real estate investment to GDP. The former number is skewed by several areas such as Beijing and Shanghai, that have built up their infrastructure and manufacturing. They have a low total investment figure relative to GDP, so the real estate portion looks high.
The better comparison is real estate investment to GDP.
- Hainan 36%
- Guizhou 27%
- Yunnan 25%
- Chongqing 24%
- Fujian 22%
- Liaoning 21%
- Ningxia 21%
- Anhui 21%
- Zhejiang 18%
- Sichuan 16%
Hainan, Guizhou and Yunnan are tourist destinations, so the reliance on real estate is no surprise. In contrast, Zhejiang and Fujian are relatively developed, yet real estate remains a high proportion of GDP. The tougher market conditions facing exporters over the past few years, such as higher labor and raw material costs and a stronger yuan, sent businesses into real estate.
And will send them back out again, it seems. Those are big numbers in some major provinces.
