Will a potential Chinese housing crash trigger a global financial shock?

[george]

Will a potential Chinese housing crash trigger a global financial shock?

One of the most common explanations for the Great Recession or Financial Crisis of 2008 was the explosion in low quality loans that led to a massive bust in the real estate market. So many people were ‘flipping’ homes on no asset/no job/no income loans that there was a huge glut of properties on the market waiting to be ‘sold.’ Eventually, the market got in over its head and imploded since there were no buyers for the inflated prices of the existing real estate inventory.

Full story: http://www.streetwisejournal.com/will-potential-chinese-housing-crash-trigger-global-financial-shock/4252/

[Scott]

I thought that much of the property was owned by the gov't. What % of this is privately owned and is under a mortgage?

[Thai at Heart]

I thought that much of the property was owned by the gov't. What % of this is privately owned and is under a mortgage?

Plenty.

I worked with a colleague who had 7 apartments all mortgaged all barely above water with rental. Interest rates have been so low, where else to put your wonga.

[alant]

Chinese or all over Asia?

Looking at the huge number and growing stock of new and unsold houses in Thailand is there a crash due here as well? OK it wont be a global one but is there a time the Thai banks have to account for all the cash they have ties up in property that is decaying unsold and uncared for?

[bangkokheat]

Eventually, the market got in over its head and imploded since there were no buyers for the inflated prices of the existing real estate inventory.

sounding like the direction thailand is going

[Balance]

I thought that much of the property was owned by the gov't. What % of this is privately owned and is under a mortgage?

There are 10's if not hundreds of entire cities that the government used to fuel GDP growth over the past 20 years. Ultimately, the government holds the paper and is carrying the housing on their books. One recent documentary on the situation noted that 95% of the housing stock is and has been empty for years. It pointed out that China uses some funny accounting to make sure that it is the cost of construction that shows up in GDP numbers, not the number of sales. It is quite literally a house of cards that cannot sustain itself.

[car720]

I thought that much of the property was owned by the gov't. What % of this is privately owned and is under a mortgage?

There are 10's if not hundreds of entire cities that the government used to fuel GDP growth over the past 20 years. Ultimately, the government holds the paper and is carrying the housing on their books. One recent documentary on the situation noted that 95% of the housing stock is and has been empty for years. It pointed out that China uses some funny accounting to make sure that it is the cost of construction that shows up in GDP numbers, not the number of sales. It is quite literally a house of cards that cannot sustain itself.

There is without a doubt a housing glut in China.

However, this is not unique to China.

Look at Australia for example where the median price of a house is beyond the reach of all but the rich who become even richer through speculation.

Same thing occurs in China on a much the same basis.

[quandow]

Just Google "china ghost cities" and you will find the results very disturbing.

[timendres]

Everyone agrees that China has a very big problem with their overbuilt housing sector, and the accompanying over-exposed banking sector. This is a serious problem for the Chinese government to deal with.

However, unlike the US, which is the largest consumer on the planet, banker of the world's reserve currency, and whose banking system is the epicenter of the world's banking system, China's reach will not impact the globe in the same way when their housing problems come to fruition. Their banking system is somewhat isolated, and their consumers matter mostly to their own economy.

The most exposed economies are those producing the commodities used in all of that construction.

[Thakkar]

When yesterday I saw my first "beware of China market" "must read" story, my Spidey sense tingled, but I refrained from commenting. However it's happened again, and from the same source, and on the same topic.

I won't comment on the value of the analysis. However, I will say that I have not heard of this website and that yesterday when I clicked on the author's name on the linked article, I was taken to a (to me) dodgy-looking site for an investment company that offered low-risk investment products for uncertain times. Draw your own conclusions.

Also, my browser warned that the investment company's website was a less than secure page.

T

[stoffel45]

Chinese or all over Asia?

Looking at the huge number and growing stock of new and unsold houses in Thailand is there a crash due here as well? OK it wont be a global one but is there a time the Thai banks have to account for all the cash they have ties up in property that is decaying unsold and uncared for?

I couldn't agree more.

Just visit Pattaya and see the tens of thousands of properties for sale.

With an estate agent we toured East and South Pattaya, Pratamnak area and JomThien. Our agent told us that it was the same in 1967 when building sites and high rise cranes dominated the landscape.

The prices, now, like 1968 were astronomic - literally poor value.

Too many people hoping for sad events and the growth of gambling casinos.

Too many Russians their judgement swept away by the comparison of the prices to those in the big Russian cities.

These are not homes built for sale so much as being built for taking the profit out at the construction stage.

Loans from cousins to cousins - secured - or rather insecured on the nominal rental value of the property.

Property 2 secured on the ridiculously high value of the first property.

The cousins in the "Banks" know exactly where this property boom is going because its demise is inevitable.

So I asked the estate agent if that meant that it was best to wait until the crash which she said would be in the next 3 years.

She said, "If you are looking for somewhere to buy to live in - then buy now. If however, it is for an investment - wait until the crash plus one to two years."

My goodness, an honest estate agent - whatever next?

[khunken]

When yesterday I saw my first "beware of China market" "must read" story, my Spidey sense tingled, but I refrained from commenting. However it's happened again, and from the same source, and on the same topic.

I won't comment on the value of the analysis. However, I will say that I have not heard of this website and that yesterday when I clicked on the author's name on the linked article, I was taken to a (to me) dodgy-looking site for an investment company that offered low-risk investment products for uncertain times. Draw your own conclusions.

Also, my browser warned that the investment company's website was a less than secure page.

T

This is the third shallow article from the same web site & I have my own suspicions about why this considered 'World News'. Seems more like half-baked opinion to me.

And this from the writing staff link:

If you want to get in contact with our writing staff, please email [email protected]

Could this be...........

Edited January 12, 2015 by khunken

[InvestingIsMyLife]

Will a potential Chinese housing crash trigger a global financial shock?

No, absolutely not. The Chinese property market is strong in major cities. When the property market starts to overheat, the Chinese Central Bank raises rates and borrowing requirements. When the market softens, it decreases rates and borrowing requirements. This is a constant ebb and flow and the Modus Operandi of Central Banks around the world

Yes, the Chinese government and developers have built large cities that are now referred to as ghost cities. One of these cities even as an Eiffel Tower and was modeled around Paris. Investors lost millions and many were forced to go into bankruptcy. But this does not reflect the overall the overall residential real estate market in China.

An economic crisis is on the way. This will happen when a bubble economy bursts. Yes, the US stock market is way over valued and reminiscent of the pre Great Depression era times. But the country with the largest debt to GDP ratio is Japan. There is a strong probability a crisis could start in Japan. Some investors are speculating this could happen in the Japanese bond market or in Japanese Privately Equity. This is the trillion dollar question.