Posted on 05/24/2023 9:10:14 PM PDT by george76
Recent statistics from China’s central bank show that home buyers’ enthusiasm has fallen drastically. Despite price cuts and incentives, the world’s largest housing market continues to slump, and China’s banking sector is taking a hit on two fronts, as both defaults and prepayments rise. Meanwhile, China’s developers are starting to show the strain, with real estate giant Wanda Group making headlines this week as the value of its dollar bonds plunged.
In early 2023, the Chinese real estate market had a short-lived rebound as local governments across the country issued policies to bail out the failing real estate sector, according to the China Index Academy, a real estate research institute. By the end of April, the mortgage rate for first-home buyers in more than 40 cities had been lowered to below 4 percent.
However, after an optimistic outlook in March, April’s sales failed to live up to analysts’ expectations.
According to the April 2023 Financial Statistics Report released by China’s central bank on May 11, mortgages decreased by 241.1 billion yuan ($33.8 billion) in April. Among those, medium- and long-term household loans, mostly mortgages, decreased by 115.6 billion yuan ($16.2 billion), while short-term mortgages decreased by 125.5 billion yuan ($17.6 billion).
Public statistics show that sales of previously owned homes in China’s largest cities all showed double-digit declines in April. Among them, Beijing fell 37.3 percent; Hangzhou fell 32.7 percent; Shanghai fell 26.71 percent; and Nanjing fell 13 percent. The worst decline was in Hefei, which plunged by 40 percent.
CCP Puts the Brakes on Price Cuts..
The weak housing market forced developers to cut prices. However, two real estate developers in Kunshan, China were penalized by Chinese regulators for cutting prices by a large margin, so much so, according to regulators, that they “disrupted the normal order of the real estate market and caused social instability.”
Japan-based current affairs commentator Qu Kai told The Epoch Times on May 13: “The reason why the [Chinese] regime won’t let real estate developers lower prices is very simple. The chain reaction caused by price cuts will instantly burst the bubble of China’s property market, causing a series of economic crises that would be difficult for the CCP to manage.”
Qu believes that the current real estate crisis will sooner or later affect banks and eventually will impact the regime as a whole, as the CCP will be unable to maintain its revenue through the property market.
On the Brink..
China is the world’s largest housing market. According to estimates from prominent economist Ren Zeping’s “China Housing Market Value Report 2021,” the country’s housing market value was $62.6 trillion in 2020, compared to $33.6 trillion in the United States, $10.8 trillion in Japan, and $31.5 trillion in the United Kingdom, France, and Germany combined. Ren is a former economist at China’s Development Research Center.
According to Ren’s “China Wealth Report 2022,” the market value of China’s housing market reached 476 trillion yuan (about $73.8 trillion) in 2021. This represents a 17.9 percent increase in total market value compared to 2020.
When considering the ratio of housing market value to GDP, China’s housing market value in 2020 was already 414 percent, higher than Japan’s 391 percent before its housing bubble burst in the 1990s.
As China’s economy weakens and the housing market shrinks, the number of foreclosed homes in China climbed to 606,000 in 2022, an increase of 35.7 percent year-over-year. At the same time, many cities have seen a huge increase in the number of second-handed real estate listings for sale.
Risk Will Be Passed to Banks..
“The consequences of real estate declines and residential mortgage defaults will eventually be passed on to the banks,” Fang Qi, a veteran Chinese finance professional living in the UK, explained to The Epoch Times on May 13.
Fang said that for banks, there are two risk associated with residential mortgages. Both situations incur losses and directly weaken banks’ assets.
The first situation arises when homeowners default on mortgage payments. Among the reasons for rising defaults in China is an ongoing mortgage boycott, with many homeowners refusing to make payments on unfinished homes. An August 2022 New York Times article estimates that the boycott may affect as many as 4 percent of outstanding mortgages.
The second is when homeowners pay off their mortgages early, as many Chinese homeowners—saddled with higher rates—are doing. Mortgage holders are tapping their personal savings or taking out cheap loans under stimulus programs intended for big-ticket consumer purchases or for starting new businesses.
Analysts estimate that nearly $700 billion of mortgages—close to one-eighth China’s outstanding total—had been prepaid since early 2022 when banks started to lower borrowing rates.
Under normal conditions, this would free up cash for banks to finance other loans. However, given the current situation in which consumers are being very cautious about spending, it’s actually bad news for banks. Not only are they losing money on existing mortgages, there is a dearth of new loans to finance.
The result is tightened financing for real estate companies, Fang warned: “The banks’ tightening of finance to the real estate sector will further plunge them into chaos, thus causing a vicious cycle that will affect the banks’ asset quality and profitability. If the risk spreads to a certain extent, banks will incur a large number of bad debts, leading to bankruptcy.”
Real Estate Developers Feel the Strain..
Amid China’s housing market downturn, many real estate developers are in turmoil. Chinese real estate giant KWG Property released an announcement (pdf) on April 28 saying it had failed to pay 212 million yuan ($31 million) of principal due on that date. The delinquency triggered another 31.2 billion yuan of debt (about $4.36 billion) becoming payable on demand. Two weeks later, the developer defaulted (pdf) on a $119 million redemption payment.
Even Wanda Group, one of China’s oldest and largest real estate giants, is rumored to be at risk for a debt meltdown. Yields on two U.S. dollar bonds sold by its subsidiary Wanda Properties Global rose above 35 percent in April. Market analysts called the surge a sign that borrowers were having trouble raising new funds, exacerbating the risk of debt crisis and default.
In late April, Fitch Ratings placed Wanda Commercial and Wanda Commercial Properties (Hong Kong) on its negative watch list.
Wanda Commercial made headlines with more troubling news on Tuesday as a $400 million dollar bond due for repayment in July fell to about 70 cents, “on the brink of distressed territory,” Bloomberg reported, under the headline “Real Estate Distress Deepens Again as China Woes Spread.”
Bfl
It’s a house of cards and when it falls It’s gonna be ugly.
CC
U.S. Banks are sitting on $1.7 trillion in unrealized losses at the end of 2022. The losses were nearly equal to banks’ total equity of $2.1 trillion
https://freerepublic.com/focus/f-news/4140984/posts
https://izismile.com/2009/06/29/apartment_building_fell_down_in_china_12_pics.html
hollow pilings/foundation
It’s interesting. I keep an eye on local sales near me in San Francisco, and some of you familiar with all the recent horror stories about the city might wonder what sort of buyer is still coming in and dropping $1.5 million and up on a middle-class home in S.F.. Well, the answer, in many cases, is the PRC buyer. When I see the buyer listed as “Zi Zhang Yu” or something like that, you know it’s PRC, as the local Americanized Chinese might have a name like “Charles Wong.”
Communist China builds the best quality projects like these examples... https://digg.com/video/heres-a-disturbing-supercut-of-poorly-constructed-buildings-in-china-falling-apart
Or this fine example. More video of it above: https://www.dailymail.co.uk/news/article-3566301/Pictured-Shocking-moment-outer-layer-Chinese-high-rise-building-peels-away-COLLAPSES-wind-picks-up.html
SSDD
Been hearing this since Obama was pResident.
And we will not be insulated from the fallout. The entire global economy will tank.
Maybe Black Rock can bail them out.
American companies got lured in by the shiny object of a 1.2 billion person market, but it was a mirage. The CCP just used that lure to draw in the greedy and stupid and steal their proprietary technology, and those companies that were allowed meaningful access to the Chinese market soon discovered that access came with a million strings attached. Now we’ll find out how large their market truly is as the CCP Potemkin village falls apart.
We gifted China with five decades of tech, and trading
practices.
Then it took off from there.
Kruschev, or whoever first said it had it exactly right. They
just had the wrong nation.
We sold China the rope to hang us.
Frankly, we still haven’t learned a damned thing.
I’ve seen plenty of those videos on You Tube.
The Chinese call it ‘’tofu dreg’’.
[The entire global economy will tank.]
I expect a repeat of 2008.
Which I was warning about before it happened. To deaf ears. And it turned out worse than I imagined.
Only this time it will be worse.
And yet there are still people who think that “Obama saved the economy” - I expect the next collapse to happen under Joe Biden.
China’s boom was caused by a partial return to the free market, where millions of Chinese were encouraged to use their intelligence, imagination, and drive to expand the productivity of Chinese society, in exchange for being allowed to make money.
But the Chinese middle class are now discovering that their investments have been skimmed by the Party oligarchs. This is a formula for insurrection.
Are those new buildings next to it? They look unoccupied
There’s a lot of unoccupied buildings in China, where real estate was bought for investment purposes rather than to live in it.
But many of these buildings are shoddily constructed.
As history has proven - with the soviets, cubans, Venezuela, and now the biden administration - commies don't know how to stand back and let the economy flourish.
I’d be more worried about US public pension funds.
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