Problems in Chinese Housing Market as Developers file Bankruptcy?

Posted by PITHOCRATES - April 21st, 2012

Week in Review

Looks like the Chinese are having some troubles of their own (see More Chinese developers file for bankruptcy: report by Alex Frew McMillan posted 4/20/2012 on Reuters).

More Chinese property developers have filed for bankruptcy, the South China Morning Post reported on Friday, as some small real-estate companies struggle after more than two years of measures by Beijing to curb home prices in China…

With around 60,000 developers in China, analysts expect more failures among unlisted companies, which would benefit big, geographically-diverse listed developers such as China Vanke 000002.SZ and Evergrande Real Estate (3333.HK)…

Other developers have been selling off assets to pay down debt.

That kind of sounds like a housing bubble.  High home prices that Beijing has tried to curb for two years?  Selling off assets and filing bankruptcy?  Either home prices are too high and people aren’t buying.  Leaving a lot of empty houses on the market that developers can’t sell.  And as a result can’t repay their debt.  Or Beijing has been successful in curbing home prices.  And they’re selling below the amount of debt it took to build these houses.

Whatever the reason it’s bad for the housing market.  Correcting prices in an overvalued market is painful.  As it is always more painful on the down side of irrational exuberance.  And housing bubbles.  Talk to any U.S. homeowner whose house went underwater in 2008.  It ain’t pretty.  The U.S. economy could lose a decade of growth before the correction is over.  Much like the Japanese during their Lost Decade.  Who could also tell you a thing or two about housing bubbles.  And painful corrections.

Is it China’s turn?  Is it time for their economy to crash and burn?  Perhaps.  For they do like to meddle in their economy.  Just as the U.S. and the Japanese liked to meddle in theirs.

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