Inquiring minds are reading an excellent report China Real Estate Unravels by Patrick Chovanec, a professor at Tsinghua University's School of Economics and Management in Beijing, China.
The report confirms many of the things I said would happen in regards to the Chinese real estate bubble and GDP.
Here are a few items of note.
Developers, burdened by 70% leverage ratios and loans threatening to come due, rushed to complete projects already in their pipeline, to put those units onto the market and raise cash.
That rush to complete inflated real estate investments, allegedly up 23.5% in the first quarter. Other statistics from the report tell the real story.
- Year-on-year sales in Q1, for all real estate, was down 14.6%.
- Residential property sales were down 17.5%
- Office sales were down -10.2%
- Sales in January-February were a disaster, falling 20.9% overall, compared to the first two months of 2011, -24.7% for residential.
- Total amount of floor space “for sale” was up 35.5%, compared to the same date last year
- Floor space of residential units “for sale” grew 47.4%.
- At the end of 2011, total floor space “under construction” was roughly 4.6 times the floor space sold
- A year and a half worth of excess inventory is hidden somewhere in the pipeline
- New starts in April fell 14.6% year-on-year and 27.0% month-on-month, for property as a whole
- Housing starts fell -14.4% year-on-year and -23.4% month-on-month
- Office starts fell -21.0% year-on-year in April, and -45.1% compared to March
- Retail property starts fell -18.7% year-on-year, and -36.8% compared to March
- Land sale revenues in April (RMB 27 billion) were down -54.7% compared to April last year
- Foreign funding for property development was down -91.4% in March and -80.8% in April, compared to the same months last year.
Clearly a crash is underway. The above stats also show the soft-landing thesis is written on toilet paper.GDP Analysis
I like the analysis by Chovanec on GDP implications and the highly-overrated "soft landing" theory.