Chilling real estate numbers from China
Business professor Patrick Chovanec, a firm believer that the Middle Kingdom is suffering from a real estate bubble, catalogues some of the latest economic numbers coming out of China and detects a severe contraction in the housing and commercial sector.
Chovanec believes that real estate prices will head down, which will take China's GDP with it.
There was an astonishing 23.5% growth in real estate investment, says Chovanec, but he proceeds to explain it away:
So if sales were down, and starts were either flat or down, where was the 23.5% investment growth coming from? Developers, burdened by 70% leverage ratios and loans threatening to come due, were rushing to complete whatever projects were already in their pipeline, in order to put those units onto the market and raise cash. Completions (measured in floor space) were up 39.3% in Q1, compared to last year (residential completions were similarly up 40.0%). But, of course, those completed units weren’t selling like last year, so unsold inventories expanded.
China’s developers are playing out a kind of prisoner’s dilemma: rush to complete, in hopes of cashing out. But while supply keeps going up, demand is going down