Interesting article about the Chinese real estate market, which is currently in a particularly precarious position.
To quote Michael Pettis, who knows a lot better than me on the subject:
Interesting and very disturbing article. The plunge in real estate values in China’s tertiary cities seems to weigh on people’s ability to spend money. This has yet to happen in first and second tier cities, but as property prices continue to rise to even more unrealistic levels, regulators are in a dire straits. They cannot allow property prices to continue to rise because that makes the reversal more likely and more damaging. They cannot allow real estate prices to fall because this would cause a significant reversal from whatever the rebalance has been achieved and the need for another public sector debt hike. And they cannot stabilize property prices because only the perception of rising prices prevents them from falling.
To me, it looks like the curtain is being lifted to China, anyone who is more interested should see these things:
Essentially, due to China’s poor policymaking capacity, it has cornered itself in a demographic trap. As the population, and more specifically the producer group of the population decreases, the demand for housing decreases. Due to China’s mickey mouse and bond market, most of China’s wealth goes to the home. 87% of homes bought in 2018 were bought by homeowners and over 50% by third home sales (!!).
Anyway, I think this is an interesting post for anyone following this topic.