Home Price Cuts Are Prologue to Collapse

An opinion piece arguing that the drop in prices may be the prologue to a housing market collapse, but that the prologue may be longer than expected.

中国房价正在迎接非典型崩盘

There are some hot real estate market in recent news, the legendary property market crash seems to be approaching, and therefore may wish to return to the topic, do some discussion on the property market trends.

Start a macro perspective to do some analysis. As the U.S. economy gradually recovers, the job market improved significantly, the Fed announced to cut the amount of quantitative easing from the beginning of April, the amount of the bond purchase cut from $ 65 billion to $ 55 billion a month, and hinted in 2015 will fade quantitative easing.

In absolute terms, this policy fine-tuning on the dollar amount of the money supply have limited impact, but significant changes in psychological expectations, international capital flows are expected to change, which relied on large capital inflows from the Chinese room to stimulate the real estate bubble has important inhibitory effect.

Atypical collapse of housing prices in China are welcome

Since mid-January, the RMB has depreciated more than 2%, although for different reasons devaluation explanation, it was attributed to changes in the Fed's monetary policy, also suggested that the central bank intends to control the results, but objectively devaluation will increase exchange rate risk in the international market for financing the developer, while the impact of asset prices. With the dollar rate hike pace approaching, large developers through the issuance of U.S. dollar bond financing practices, will increase the difficulty of the issue and upgrade costs.

From the current situation, in the past few years, local government debt, debt and real estate industry platform-based private sector debt has been high, since 2008, new credit of up to $ 14 trillion, most of the loans are used for basic construction facilities in fixed assets, such as real estate and factories, Chinese private sector loans to GDP ratio of 115 percent from 2007 to 2012 jumped 193% debt deleveraging imperative, which real estate companies exert tremendous pressure on cash flow .


On the surface, China's central bank is the basic idea moderately tight monetary policy, but in fact opportunistic thinking has been dominated by the Chinese central bank's monetary policy, under market pressure, such as late June 2013, the so-called money shortage crisis, and 2014 liquidity tensions before the Spring Festival, the central bank will often use a variety of policy instruments to inject liquidity into the market, but after all, China's total broad money M2 has more than 110 trillion, M2 to GDP ratio of over 200%, the economy has been in the body Under inflationary pressures, so the management of liquidity has been a sword of Damocles central bank, expect the central bank's loose monetary policy to stimulate or maintain economic bubble of hope will come to nothing.

Morgan Stanley recently published a research report that China's large debt coming due, the borrower money is tight, slow economic growth, monetary policy tightening, market interest rates rise, speculative and Ponzi credit credit sway. All of these are harbingers, credit is drying up, China's "Minsky moment" has been getting closer, GDP growth will fall to 5 percent or.

As the market cast [ Introduction News ] machine of Ponzi credit and increase credit, credit deterioration of the environment, the financial system for hedging consider tightening credit, provided the economy when the loan has been insufficient to support the liquidity needs, the there will be "Minsky moment." "Minsky moment" is a turning point between boom and bust. This clearly constitutes a systemic risk, and the real estate industry is bearing the brunt of the recent events has been the depth of the impact of several typical follow-up financing capacity of the real estate industry.

Shanghai Super issue of corporate bonds because they can not pay interest on schedule, the earthquake has triggered a bond market, the market in the trust, the trust issue around 2011 products, many of which are facing can not repay the scenes, and more mines are detonated . These are signs that traditional banking and financial channels since the developers gradually closed the door to credit, the shadow banking financing channels are gradually narrowing.

Occurred in Ningbo, Zhejiang Jiang Xingrun real estate development company collapse, causing widespread concern in the industry. According to media reports publicly available information, Ningbo Xing Yun liabilities more than 3.5 billion yuan, of which bank loans is almost 24 million in construction payables 4 billion in private debt folk are at least 7 billion respectively. Ningbo Xing Yun enjoy good political and business resources at the local, but due to slow-moving items, slow Days sales outstanding, tremendous financial pressure, after the bank financing channels closed, had to resort to civil usury, was eventually overwhelmed by the huge costs of private financing.

Official statistics show that sales are stalling, 1-2 February national real estate real estate sales of 709 billion yuan, down 3.7% over the same period last year. In summary, both the macro side or meso level, liquidity is low tide, the financing channel is gradually shrink, and then compare the various recent news of falling house prices, can deepen the understanding of the real estate trends. While mobility is constantly receding tide, while the increasingly sluggish sales, which is tens of thousands of real estate companies viability of a containment. Developers need this adventure game, the first force to boil the winter market too.

In this context, only superficially like the price is expected to strengthen the prices down, in order to stimulate sales, the developer must have slashed prices of courage, therefore, after the Spring Festival, a real estate north of the city of Hangzhou, a shot on the announced price cuts 4,000 per square meter, This triggered a wave of price trend is still spreading, Changzhou, Nanjing, Guangzhou and other places have successively follow up real estate prices.

However, with respect to the pattern of the entire housing market, the price of these sales of real estate, it seems not enough to constitute a landmark event, these events are storm in a teacup or a harbinger of the collapse of the property market?


From a national perspective and falling house prices is not new, such as the typical Ordos and Wenzhou cities, housing prices have been cut, but overall, from the collapse of real estate people think there is a great distance. People on real estate trends quite alarmed, and yet not quite sure a lot of people are still waiting for a typical event, you can wait for a clear signal transfer market collapse of typical events.

This kind of understanding of the real estate crash scene stereotyped impression of public communication is formed, for example, the Southeast Asian financial crisis era cliff prices downward, when the U.S. subprime crisis wave of selling real estate, but these may not be the typical scenario of crisis will certainly reproduce in China, As I previously analyzed, because the local government intervention, due to the different ownership structure, as the market characteristics of different regions, market and non-market logic logic, etc. are simultaneously at work.

Even in the face of a clear market down cycle, different types of developers will show different response mode, and in the consequence of the property, there will be a variety of repeated various hardcore, prosperity and decay surfaces alternately appear more precise, even if the property market crash in progress, but this did not collapse the moment the national unity, there will not be simple and clear identification, information chaos and cacophonous will continue to continue.

By the end of March, a real estate Chengdu East Third Ring announced price cuts, leading to the site of the original owners of trouble, sales offices smashed, triggering the special police to the scene to maintain order. Chengdu Pokfield users commented that began when the SWAT shields to defend the sales office, house prices would collapse began.

Yes, there is too much evidence that the sharp decline in prices should, there are too many signs that the collapse of housing prices started, but may need to wait very long between the prologue and drama, and drama is not even looking forward to the kind of mass upsurge. Faced with an atypical industry, we are greeted is a atypical collapse.