Friday, November 11, 2011

Property Prices Falling

China commods gamble heightens property threat

However, there are still plenty of such loans outstanding to smaller trading firms in copper and steel, exposing banks and traders to the risk that the once-frothy property market could start to see a serious correction. The property market, once a favorite of speculators, is now starting to see prices fall and, with them, revenues for those who had invested in developments, impacting the ability of some investors to repay their loans. Some housing projects in Shanghai have already lowered prices by around 30 percent in recent weeks and some developers have run into problems repaying their debt, according to local media reports.

Posted by mark @ 11:14 AM (1095 views)
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2 thoughts on “Property Prices Falling

  • China has been described as the biggest bubble of all. This might be mere rhetoric but in a command economy with artificially imposed growth targets lending by the banks must tend heavily towards mal investment. I hear also that China in calculating GDP actually factor into the figue the amount of money printed. It is taken as almost an article of faith that the RMB is undervalued. Perhaps not. If the world is a bad neighbourhood, is China in fact the best house as so often assumed.

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  • Numbers matter. I don’t know whether China’s property development sector is a large component of the economy. I don’t know how many trillions of which currency are at risk, and what proportion of GDP that represents. Some sources claim that despite it looking like a terrible bubble, the numbers are actually quite small (by post-crisis standards, i.e. a trillion is now a small number). So I don’t know whether China will “crash”, and my gut instinct is that it will not. As in the rest of the world, the central bank will step in to save reckless banks.

    That said, it’s clear that construction in China has been running rampant, fuelling excess demand for commodities. They’ve over-built; now there will be a few years of less building. Commodity usage will fall, and with it commodity prices. Will demand elsewhere take over? Not in Europe, obviously; nor in the US which is still struggling with millions of unsold or repossessed (foreclosed) houses. Commodities are definitely in for a tumble.

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