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China Property Dip Sparks Bank Fears

JayAtl

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Nov 18, 2010
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The number of property transactions in China’s largest cities has fallen to dangerously low levels, according to regulatory documents obtained by the Financial Times.

According to the documents, the China Banking Regulatory Commission earlier this year ordered domestic banks to weigh the impact of a 30 per cent decline in housing transactions in “stress tests” aimed at determining the health of the Chinese financial system.

While the government has been trying to rein in sky-high property prices, a Chinese real estate slump would have a significant ripple effect on the global economy. Property construction accounted for more than 13 per cent of China’s economy last year.

In April the CBRC told banks to test their loan books against a 50 percent fall in prices, and also a 30 per cent fall in transaction volumes.

In October, however, property transactions fell 39 percent year-on-year in China’s 15 biggest cities , according to government data. Nationwide, transactions dropped 11.6 percent, accelerating from a 7 percent fall in September.

The fall-off in transactions has affected developers’ cash flows and, in some cases, their ability to repay bank loans. Rising defaults after a lending surge in 2009 and 2010, much of which ended up in the property sector, were cited by the International Monetary Fund this month as one of the Chinese financial sector’s biggest risks.

The CBRC has not released the results and declined to comment. But one analyst who reviewed the stress-test documents said they did not take into account the impact that fewer transactions and lower property prices would have on bank collateral.

“If developers can’t sell property and local governments can’t sell land, it’s hard to see why banks would be any better at either task under such conditions,” the analyst said.

Chinese regulatory officials admit privately that the tests need to be improved. One senior official said banks were often unaware that loans to big state-owned enterprises had been funnelled to real estate subsidiaries, and acknowledged that the impact on collateral had not been fully taken into account.

The weaknesses in the Chinese scenarios echo earlier problems with stress testing in the European Union, where regulators underestimated the potential impact of a sovereign debt crisis.

The fear is that the impact of a bursting of the Chinese property bubble could yield a crisis just as dramatic as the one now unfolding in Europe. Rising defaults after a lending surge in 2009 and 2010, much of which ended up in the property sector, were flagged by the International Monetary Fund this month as one of the major risks hanging over the Chinese financial sector.

While Beijing’s campaign to cool the property market has had its intended effect, some analysts worry that the government has underestimated the impact its measures are having.

The measures, including higher downpayments and restrictions on home purchases, have taken nearly two years to gain traction.


But the concern is that the government will have trouble shifting gears quickly to respond if necessary. The fall in the number of in buyers is also beginning to weigh on construction, which could deal a blow to the wider economy.

Those knock-on effects were barely tested in the stress analysis. Banks were told to catalogue a series of property-related loans: to developers, for mortgages and to upstream industries like cement and downstream industries like furnishings. But the methodology imagines that while house prices drop, overall economic growth remains more or less unimpaired.

“Before property prices drop 30 percent, one needs to think how much sales are down and, more importantly, how much construction is down. Not only will that impact on steel and cement, but it also would mean a drop in industrial production, investment and jobs,” one analyst told the FT.

Another analyst said the stress tests did not do a good job of grappling with the way a property slump would ripple through the banking system by resulting in falling land sales and prices on the value of bank collateral. Yet the vast majority of collateral in the Chinese banking system is land or property, so a slump could force writedowns across the board.

“This is the key correlation risk. If developers can’t sell property and local governments can’t sell land, it’s hard to see why banks would be any better at either task under such conditions,” the analyst said.

Additional reporting by Jamil Anderlini in Beijing and Brooke Masters in London
News Headlines
 
Bursting bubbles and adjusting the economy is a good thing in the long term. No, China is not going to collapse. Look at the way the Chinese stock market fell since it peaked in 2006/2007.
 
Bursting bubbles and adjusting the economy is a good thing in the long term. No, China is not going to collapse. Look at the way the Chinese stock market fell since it peaked in 2006/2007.

But all we heard from the chinese here for the longest - "there is no housing issue"- when articles fore warning about it came forth in the months and year preceding this. The chickens have come home to roost. Your govt lies to you and the world and censors anyone who challenges the myth.
 
As long as the property market bubble does not impact the overall economy, it's not an issue.

If the US and the EU with its million force of intelligence got framed by Chinese lies, kudos to the Chinese! :azn:
 
Götterdämmerung;2314448 said:
As long as the property market bubble does not impact the overall economy, it's not an issue.

If the US and the EU with its million force of intelligence got framed by Chinese lies, kudos to the Chinese! :azn:

Apparently- You don't get "economics" it seems with a statement like " As long as the property market bubble does not impact the overall economy, it's not an issue." the brainwashing extends to citizens who live in other countries...
 
Well, China seems to be steaming ahead and somehow the Chinese government seems to have instruments to control the economy we don't have anymore due to our past mistakes by implementing US economic policies. Right now my government's economic policy is more and more dictated by large companies. Fortunately, Germany is still a manufacturing power unlike the US whose economy is based on bogus financial products, military products and exploitation of (copy)rights.
 
Götterdämmerung;2314535 said:
Well, China seems to be steaming ahead and somehow the Chinese government seems to have instruments to control the economy we don't have anymore due to our past mistakes by implementing US economic policies. Right now my government's economic policy is more and more dictated by large companies. Fortunately, Germany is still a manufacturing power unlike the US whose economy is based on bogus financial products, military products and exploitation of (copy)rights.

was that what the memo said you should use as your talking points? stay on topic ...
 
Götterdämmerung;2314603 said:
Tell me what is off topic in my post!

read the topic header and article. Property data... but then again your previous statement on it showed- you have no clue on how property values play an intrinsic part of an economic data.
 
read the topic header and article. Property data... but then again your previous statement on it showed- you have no clue on how property values play an intrinsic part of an economic data.

I did read the topicand my answer is that the Chinese governemnt has control mechanism to fight a property bubble we lack in Europe due to false policies in the past.

And as far as I know, the majority of property in China are not funded on credit but on cash or the downpayment is quite high.
 
China doesn’t have purely free capitalist market.

China’s economy is government guided free market.

To your gleeful bunch of China-collapsing chorus boys: though your evil intention has been long nurtured (since 1962), your hilarious jubilee is prematured. Current property price dip is guided by the very Chinese government. The government can also intervene to loosen credit requirements. It is not the capitalist free market in USA.

Pitiful you can't read Chinese, written by Dr. Xie: It is good for Chinese economy to bust property bulble
 
China doesn’t have purely free capitalist market.

China’s economy is government guided free market.

To your gleeful bunch of China-collapsing chorus boys: though your evil intention has been long nurtured (since 1962), your hilarious jubilee is prematured. Current property price dip is guided by the very Chinese government. The government can also intervene to loosen credit requirements. It is not the capitalist free market in USA.

Pitiful you can't read Chinese, written by Dr. Xie: It is good for Chinese economy to bust property bulble

some folks need to concentrate on less " chinese are a master race posts" and " sheep like brainwashed propoganda and read the tea leaves" here mr seditious....

2010 chinese " no such thing as property bubble coming , all is great in china "
2011 Jan- - October : chinese " no such thing as property bubble coming , all is great in china "
2011 Nov- chinese " Oh, property bubble is good to be busted"
:rofl:

Nov. 21 (Bloomberg) -- China’s property market has reached a “tipping point” and the slowdown in the housing industry will have a spillover effect on demand for steel and other construction materials, according to Nomura Holdings Inc.

The risk of the nation’s economic growth falling to less than 8 percent in the first quarter is also higher than before because of the housing market, Zhang Zhiwei, a Hong Kong-based economist at Nomura, said on a conference call today.

“The property sector has probably already reached a tipping point given the data is getting worse at a very fast pace,” Zhang said. “We’ve been here before in 2008 with housing investment and I feel we’re getting close to that stage. I’m more worried about the housing sector and the GDP of the first quarter.”

China’s home prices fell in 33 of 70 cities monitored by the government in October, the worst performance since it expanded property curbs and scrapped the reporting of national average housing data this year, according to figures from the statistics bureau on Nov. 18.

Shares of Chinese developers declined. Longfor Properties Co., controlled by China’s richest woman Wu Yajun, dropped 5.4 percent to HK$7.89 at the close in Hong Kong, the lowest in six weeks, while state-owned China Resources Land Ltd. slid 4.5 percent to HK$10.22.

Shanghai Home Sales

Home sales volume in China’s financial center of Shanghai plunged 45 percent in November to date from the same period last year, according to property research company Shanghai Uwin Real Estate Information Services.

The country’s private housing investment is expected to increase 14 percent in 2012, matching the gain in 2008, which was the slowest in 10 years, Nomura said. So-called second- and third-tier or less affluent cities will drive the nation’s housing demand, the brokerage said.

“In the private market sector, the downturn will be longer than 2008 because the government is taking a different strategy by pushing public housing,” Zhang said. “Private housing will stay weak for quite some time.”

Premier Wen Jiabao said this month that the government won’t relax property curbs. The government this year raised down-payment and mortgage requirements and imposed home purchase restrictions in about 40 cities to avert a bubble. The central bank also increased interest rates three times and reserves ratio six times this year.

Barclays, CBRE

Analysts including Barclays Capital Research and asset managers such as CBRE Global Investors are betting price declines will force a policy reversal as the tightening weighs on economic growth. Zhang said he expects the government to maintain its housing measures and loosen monetary policy “gradually.”

More than twice the number of cities posted declines in October compared with September, when 16 locations reported lower prices from August, according to the latest government data. Prices in 23 cities were unchanged in October and 14 recorded gains, the data showed.

Housing values in Shanghai and the southern business hub of Guangzhou fell 0.2 percent from the previous month, while those in Shenzhen, neighboring Hong Kong, slipped 0.1 percent. Beijing prices were unchanged.

Home prices will fall between 15 percent to 30 percent in the next two years, Mark Mobius, who oversees $40 billion as Hong Kong-based executive chairman of Franklin Templeton Investments’ Emerging Markets Group, said before the housing data last week. BNP Paribas predicted a 10 percent decline by the second half of next year.

“I expect more cities to fall month-on-month,” Zhang said. “We are certainly not at the worst moment yet.”

Residential property accounted for 6.1 percent of the country’s gross domestic product last year, according to Citigroup Inc.

--Bonnie Cao. Editors: Linus Chua, Andreea Papuc

http://www.businessweek.com/news/20...market-reaches-tipping-point-nomura-says.html
 

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