Real Estate Insider Expects Another Wave of Price Declines; Advises Trading Stocks Instead

First-tier prices are rising and investors are pulling cash out of stocks, throwing money back into the property market on the belief prices won't fall. The cancellation of buying restrictions and easing of policies, including rate cuts, seems to back up an optimistic forecast. But industry insiders expect another wave of price declines is coming.

But in fact true, I think prices will inevitably fall, mainly for two reasons: First, RMB devaluation expectations; second, the still sluggish real economy.

Let me talk about the second reason, the impact of high prices on the real economy from not much more to mention. Although the real estate economy appears to prosperity a large man, but it is not sustainable development. Because of the high prices will inevitably push up land prices, and land prices after the increase in costs will bring the entire industry. No matter what industry are inseparable from the land, not to mention plants need a lot of land resources, it is a small shop, and now also need to face high rents.

In this case, the domestic commercial real estate appears universal decline, many shopping malls take cover vacant now, Beijing more than ever determined to become a landmark commercial buildings have been turned into a ghost house. It touches the rise of online shopping, but this does not change the net purchase managers also need to address the fundamental needs of living, so the whole industry in the high-cost pressure into a malaise. The more important point is that this become the main consumer of the middle class of young people, but at high prices too much pressure overdraft consumption capacity, depressed purchasing power, leading to the emergence of domestic consumption decline and economic crisis of overproduction situation. But to fundamentally change this overcapacity, and reactivate the real economy and small business, prices must fall. Even if the central repeatedly stressed the need to stabilize the economy, but the objective fact is that to save the real economy, prices must be pressed down, this is a long painful trade-offs and short pain, and therefore the future of the property tax is likely to be implemented extremely strict.
These arguments aren't new. High real estate prices drive up rents and business costs. Way back in 2013 and before then too, Andy Xie was warning that high property costs are burden on the economy. Economically depressed regions often enjoy a revival precisely because cheap real estate makes it affordable for young people, artists and business start-ups. In China, high priced commercial real estate makes it unprofitable for retailers to have physical stores in some areas. Everyone needs a home and the cheaper it is, the more disposable income is available for consumption. High homes prices are a good sign if the overall economy is booming and high incomes are driving prices, but a speculative bubble is stupid. And the comparison of wages to home prices indicates China's housing bubble is one of the dumbest in history. (See: China Homebuyer Pain Index; Wage Growth May Cushion Price Declines)
And then around the back and said the first reason, the problem of devaluation. Generally speaking, currency devaluation will bring capital outflows, capital outflow will cause commodities, especially selling real estate, which in turn in the case of a national central bank reserves can not afford further exacerbate capital flight devaluation. For China, a huge currency devaluation is expected to bring a sustained outflow of capital, that have become the unspoken event, although the official did not explicitly say anything, but almost always referred to each meeting, the last also say is a normal adjustment has no effect on the exchange rate.

But regardless of whether the relationship with the capital outflows, the RMB exchange rate is indeed falling, and this has also brought a greater capital outflows. In such a case, the real estate should be the first to be affected. But in fact it was not the real estate crash occurred. I think this one is related to the control of the government, the official reluctance real estate slump, causing confusion in the market; second, exchange rate movements have not yet been put in place, the industry generally believe that the future of the yuan against the US dollar may go to about 7, yet far enough away now ; Third, China's real estate market is not an open market, not only need to buy red tape and identity documents, and even need to sell consuming effort, and money to pay taxes. Therefore, devaluation ultimately affect when there are two conditions, the time and the ratio of the real estate. Longer time, must have at least one year of a buffer; to a large proportion of, at least, to give about 6.5 to 6.8. In other words, the second quarter of next year is likely to be node house prices fall.
It doesn't matter if home prices should rise or fall with the yuan. If people believe they will fall, they will sell and prices will fall. If a decline to about 6.8 is the threshold for selling, then we may get there much sooner than Q2 2016. I'd bet on the yuan being close to 7 or beyond by year-end.

Finally, the author concludes that if you're deciding between flipping houses or trading stocks, go with stocks.

iFeng: 业内:实体经济萎靡 房价会有新一轮下跌

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