If China goes bust, will Vancouver go Ka-Boom?

If China goes bust, will Vancouver go Ka-Boom? This is the $64,000 question.

Or, given that we're talking about Vancouver Real Estate, the $64,000,000 question.

HAM, or Hot Asian Money, has been one of the factors attributed to driving our irrational real estate market.  And many have openly wondered, if China falters will Vancouver whither?

We may soon find out.

Simon Black, who writes the blog Sovereign Man, recently reported that the stresses of the housing bubble in China are starting to become evident.

As faithful readers know, we have talked about the fact that China has poured more stimulus per capita into their economy than have the Americans.

And Black reports of the effects of Chinese backpedalling.

After dumping trillions of dollars into the economy to ward off the effects of the global financial crisis, Black notes the Chinese government is now pressuring banks to reduce loans. A move which is bringing much of China's credit-intensive economy to a screeching halt.

Recent reports from China's National Bureau of Statistics show that home prices have fallen up to 50% in many parts of the country in the period from July to September.

And the reality of those statistics are evident to Black who notes the reaction of Chinese citizens:

• Stunned. That probably best describes the mood of China's vast pool of property owners. For the last few years, anyone with as much as a taxi driver's salary has been speculating in the real estate market, scooping up off-plan properties at terms that would make a Countrywide mortgage broker blush.
  
  And why not? Chinese culture has almost universally adopted the attitude that property prices never go down. Minor fluctuations and corrections over the last several months have been written off as statistical error. Well, reality has now uncomfortably set in.

In Shanghai that uncomfortableness manifested itself in rage as nearly 300 angry customers stormed a sales office of Longfor Properties Co Ltd after finding out that the developer had slashed prices on one of its projects by nearly 25%... practically overnight.

Another angry mob in Shanghai assembled outside the sales office of China Overseas Property Group Co after that company made similar price concessions for new buyers. These were obviously the poor suckers who bought in months (or years) ago at a much higher price... and they're not especially happy about a property crash.

Black notes the troubles are not just in real estate. Auto dealers are having the same issues, with many luxury brands ranging from BMW to Mercedes offering steep discounts up to 20% to lure buyers onto the showroom floor.

Growth has definitely slowed dramatically, and the tightening of credit is having widespread effect across the economy.

This article notes that a Chinese banking collapse is brewing and that in Hong Kong September sales to the United States and Mainland China fell 8.9% and 7.3% respectively. Shipments of electronics are off 16%, while outflow of T-shirts, undies, and the like fell 8%.

The HK government has described the situation as "bleak."

Will it be long before the effects are felt in Vancouver?

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Thur Post #2: Is China nearing the tipping point? And whither Vancouver?

We have covered the flip floping of local Real Estate industry representatives who now claim 'hot asian money' is not the factor in the Vancouver Real Estate market that it has been made out to be.

Whether or not it is true, there is no denying a definite Asian influence that has transformed Vancouver since the early 1990s.

Asian money is most certainly present in Vancouver and it plays a role in our resilient housing bubble.

Some observers of our Real Estate scene believe the real tipping point for the implosion of our massive bubble will begin in earnest when the China juggernaut begins to slip.

China is renown for its boom/bust cycles and many critics content the latest 'China miracle' is simply an extension of that trend.

China, on a per capita basis, has pumped more stimulus into their economy than America has during this financial crisis. Their housing bubble is believed to be larger than the one the that built up in the United States.

Mike Shedlock, author of the blog Mish's Global Economic Trend Analysis has done a number of posts about the China situation.  You can see them by following the links at the bottom of this post in which he looks at news that China's shadow loan market is crashing and that scores of business owners, unable to pay back their loans, have disappeared or have committed suicide.

The collapse of the shadow loan market (and the rash of suicides) is the latest in a series of troublesome news out of China.

Back on April 17, 2011 we noted how the fourth ncrease in China's banking reserve requirements this year had triggered a plunge in Chinese real estate:

• “Prices of new homes in China’s capital plunged 26.7% month-on-month in March, the Beijing News reported Tuesday, citing data from the city’s Housing and Urban-Rural Development Commission... Home purchases fell 50.9% year over year and 41.5% month over month the newspaper said… For all intents and purposes a drop of this magnitude levered even 2 times (assuming 50% or so equity down) means that China is on the verge of a complete bubble implosion.”

The China situation deserves close scrutiny. 

If the China Real Estate bubble is indeed starting to unwind, at some point wealthy Asian property owners will be forced to liquidate assets they own in other parts of the world in order to cover debt payments.

And given the current situation in the Vancouver market, an emergency selloff in the high end of our market could be the trigger that starts a cascade of selling.

As we have said, it's a situation that continue to watch with interest.

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Email: village_whisperer@live.ca
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Please read disclaimer at bottom of blog.