11 May 2014

China property bubble

  11 May 2014

By THE STAR

CHINA’S property boom is said to be on its last leg and possibly reaching systemic proportions.

“In 1990, Tokyo’s total land value accounted for 63.3% of US GDP (gross domestic product), while Hong Kong reached 66.3% in 1997.

“Now, the total land value in Beijing is 61.6% of US GDP, a dangerous level,” said Vanke Group vice-chairman Mao Daqing.

According to The Telegraph, a leaked recording of Mao’s dinner speech more or less confirms what the bears have been saying for months.

It is a dangerous bubble, and already deflating, says Ambrose Pritchard-Evans in his column in The Telegraph.

China’s anti-corruption campaign has resulted in a flurry of home sales as many people try to get rid of high priced units.

Transaction volume has slowed down in the 27 cities surveyed, of which 21 cities have inventory exceeding 12 months, said The Telegraph, quoting Mao.

“We believe that a sharp property market correction could lead to a systemic crisis in China, and is the biggest risk China faces in 2014,” said Nomura’s Zhiwei Zhang.

The risk is particularly high in third and fourth-tier cities, which accounted for 67% of housing under construction in 2013, said Zhang, as quoted by The Telegraph.

China can leave the situation to correct itself or prick the bubble.

“Whatever measure is taken, when China sneezes, you will catch a cold, wherever you are,” said Pritchard-Evans in his column.

Citing the decision by the US Federal Reserve to pop the bubble in 1928, he said it caused a lot of adverse effects which the world should be aware of.

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