Telegraph's Evans-Pritchard: Standard Chartered Warns of 30% Drop in Chinese Property Prices

Following up on my previous post on China's bubbly high-end real estate market, here's permanently gloomy Ambrose Evans-Pritchard of Telegraph UK, telling us that the Chinese real estate property prices in major cities are set to plunge 30%.

China's property market braced for 30pc drop
(Ambrose Evans-Pritchard, 7/6/2010 Telegraph UK)

"Standard Chartered has told clients to prepare for a fall in property prices of up to 30pc in Beijing, Shanghai, Shenzen, and other large cities in China as the delayed effects of monetary tightening begin to bite.

"Stephen Green, the bank's China economist, said a glut of newly built homes were hitting the market just as buyers are restrained by higher down-payments and curbs on speculation. "We believe developers will be forced to cut prices," he said.

"Kenneth Rogoff, ex-chief economist for the IMF, told Bloomberg Television in Hong Kong that the denouement could prove abrupt after such a torrid boom. "You're starting to see that collapse in property and it's going to hit the banking system," he said.

"The government is trying to deflate the housing market gently, mostly using tools known as "financial repression" rather than Western style rate rises. Xu Shaoshi, land minister, said sales are already dropping. "In another quarter's time or so, the property market will probably come to a full correction and prices will fall. It's hard to say to what extent they will fall," he said." [The article continues.]

I've never seen a successful soft-landing from a sugar-high bubble, resulted from highly inflated money supply.

It is also good to recall at this time my post in early January about the "Merchants of Wenzhou" selling out their investment properties in Beijing. I think these shrewed investors knew when to bail with fat profits.

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China's Real Estate: Bubble? What Bubble?

A real estate agent in Shanghai selling luxury high-rise apartments is puzzled at the question by the BBC Business Daily's interviewer: "Is this a bubble?"

"Bubble? People are more cautious these days, but no, it's not a bubble. 80% of the buyers are the "end users" (not speculators). A 320 square meter apartment sells for US$4.5 million. We have USD$30,000 bathtub in the master bedroom. This is what the discerning buyers (top 5% of population) expect nowadays..." (I'm paraphrasing.)

The average wage of urban workers in China was about $5000 per year in 2007. The wage gap between the workers, though, have grown rapidly in recent years. Within the same company, the gap can be between 10 to 100 times (and that's from an article in 2007!) - an average worker of the company may be getting $5000 a year, but a middle manager may be getting $125,000 a year.

There are 477,000 millionaires in China (that's the world's 4th after the US, Japan, and Germany), politically still a Communist country.

You can listen to the entire program here. (Total 18 minutes. Shanghai real estate is after 7 minutes into the program.)

The last segment of the report is about London real estate. London's high-end real estate (over US$3 million) is booming again because of foreign investors (Russians, Indians, and Greeks, whose investment doubled in recent weeks) looking for a place to park their money in relative safety. (Besides, British Pound got cheaper.)

At the height of the real estate bubble in Japan, office ladies were eating tiny pieces of cake with pure gold flakes on top with their afternoon tea. $30,000 bathtub seems very close to being a signal of the real estate market top in China.

If a real estate professional in Shanghai is confident he can sell a $4.5 million apartment, good for him, but it is a bubble; the question is how much bigger can it still get before the inevitable collapse, and how long will it take?

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