Wednesday, September 10, 2008

China Succumbing to Real Estate Downturn

China appears to be caught in the line of falling real estate markets.

From The New York Times:

GUANGZHOU, China — China has joined the United States, Britain, Spain and others on the list of nations suffering a real estate decline.

Although the last national statistics showed single-digit growth from July 2007 to July 2008 in the average price of commercial and residential real estate, real estate brokers say prices are down from peaks reached earlier this year, while the number of transactions has plunged.

This downturn comes as the growth rate of Chinese exports has slowed — sharply in yuan terms — and stock markets have plummeted. The confluence of events has resulted in what economists describe as a deceleration in China’s economic growth — although at nearly 10 percent it remains the envy of many nations.

Brokers say that sales volumes first dropped precipitously here in southeastern China, and then the decline spread across the country. Faced with few buyers, sellers started cutting their prices for residential and commercial real estate.

In some neighborhoods in the southeast, prices have dropped by 10 to 40 percent.

Read On
Although things appear to be cooling off in China's housing (well, apartment is more appropriate) market, the article goes on to say that it isn't going to completely destroy China's economy like America's housing woes have done to America's economy.
But unlike the subprime meltdown in the United States, and the resulting credit crisis, weaknesses in China’s real estate market do not at this point appear to pose a threat to the vitality or stability of the financial system.

One reason is that Chinese banks require down payments of at least 30 percent, giving banks an ample cushion of cash against losses. American banks frequently did not require down payments. Foreclosures are also rare here, and many Chinese still pay cash for their homes, particularly in rural areas.
What a crazy idea the Chinese people employ: they don't live beyond their means and don't/can't buy things they can't afford.

Anyone who's been to China in the past couple years can see that China is fully embracing America's consumptionist culture. I'm sure that this trend is helping China's booming economy. Yet China probably shouldn't mimic America too closely.

The Chinese most certainly shouldn't take economic advice from our failed president George W. Bush.

Here is an article from 2006 where he encouraged the Chinese to "stop hoarding their money:"
US President George W. Bush said today that he hoped China would transform from a country where people "hoard the money they have" into one where people buy large amounts of US products.

In an interview with conservative radio talk show host Rush Limbaugh, Mr Bush said China should become "a society in which there's consumers. Because now they're a society of too many savers".

"And the reason why they're saving so much money is because there's not a pension plan or a legitimate health care system. And so, therefore, people hoard the money they have in anticipating a bad day," said the president.

"If we can encourage China to become a country of consumers, you can imagine what it would mean for US producers and manufacturers to have access to that market," he said.

Read On
It's funny to hear Bush chide China's social services. He sure has done a fantastic job of making sure nobody "gets left behind" in America.

1 comment:

Anonymous said...

There is a reason for huge number of foreclosures in North America. In NA, it is OK to walk away from a mortgage. All you have damaged is your credit rating, for a while. The mortgagee don't owe the mortgager anything after you gave up your house/apartment, etc. In other markets, you still owe the mortgager the outstanding balance. There is no benefit of walking away, because you can't. That's why the Chinese banks was considering tagging the outstanding balance to the descendants of those property owners perished in the earth quake, with house destroyed in the quake, and there is still balance owing.

In North America, when housing price drops, people just give up their house, and buy another one at depressed prices, and wait for the price to go up again.