The latest news out of China is bearish. However, you have to be very careful of how you interpret the numbers. Those who want to present the bullish view will give you sales or price numbers for real estate for the first half or the last year. That disguises the plunge in sales since April.
For example, the year-over-years sales increase in China property prices is 11.4%. However, sales since April have plunged. Prices are always slow to follow initially, as speculators refuse to sell at prices lower than the peak price. They hope prices will come back. So, sales plunge. Condo sales in Beijing are down about 90% since April. Officially, sales in Shanghai, Nanjing and Hangzhou in the first half of the year were down 50%. The unofficial numbers should be worse.
Land prices in 103 cities for the first half were down 9%. Imagine! That includes the last part of the price surge in early 2010.
Economists in China now say that the government will stop tightening measures when prices have dropped 20–30%. That’s just what Japan said in 1990. At that time, I wrote that when bureaucrats aim for a 30% decline, they will get a decline of 50% or more, namely a disaster. Actually they got a 70% decline in real estate values over the past 20 years.
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The chief economist for Nomura Securities (NMR) (a Japanese firm) in China says: “I believe such a price fall will have limited impact on China’s economy.” He may have said the same thing in Japan in 1990.
In China, car sales, which had been booming early this year, dropped a hefty 5.25% from May to June. In May, the year-over-year sales rise was 29.8% in May. China Daily reports that a leading Nissan dealer said that sales in June plunged 50% or more from the prior month. Sales people have nothing to do.
On August 2, The HSBC China Manufacturing Purchasing Managers Index was released, showing a decline to 49.4 from 50.4 in June. Anything below 50 shows contraction. This is the first time below 50 since the bottom of the last serious economic plunge in March 2009.
All the above confirms what we have been forecasting for several months: Government efforts to stop real estate inflation is resulting in the bursting of a huge speculative real estate bubble. If you want to know how it will work out, just go to Las Vegas or Miami.
Source: http://blogs.forbes.com/
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