Spain looks for cash from Chiina whose Housing market may be crashing

Discussion in 'Europe' started by Trajan, Apr 19, 2011.

  1. Trajan

    Trajan conscientia mille testes Staff Member

    Jun 17, 2010
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    The Bay Area Soviet
    some guy who needs a permit to open a Orxata juice street stand cannot get in to the Barcelona gov. office on wed. which is now closed to save money, becasue some jerk off Shanghai real estates developers have over leveraged and under capitalized, the Orxata street guys kid, an up and coming soccer star loses the big game played on Thursday which daddy cannot attend and cheer him on,loses interest in soccer, 8 years later Barcelona loses to Real Madrid, who's stars go on to lose the world cup by one goal...becasue that kid wasn't there.......and theres your global economy.

    Anyway, sounds like some bad juju for China.....hence Spain....hence Barcelona...;)

    Spain is now at the 'grasping at straws' phase as it pins its hopes on China riding to the rescue:

    European officials are hoping that the bailout for Portugal will be the last one, and debt markets have broadly shown both Spain and Italy appear to be succeeding in keeping investors' faith.

    Madrid is hoping for support from China for its efforts to recapitalize a struggling banking sector and there were also brighter signs in data showing its banks borrowed less in March from the European Central Bank than at any point in the past three years.


    If Spain is hoping for a rescue by China, it had better get their cash, and soon. As noted here five weeks ago in "Warning Signs From China," a slump in sales of homes in Beijing in February was certain to be followed by a crash in prices. I just didn't expect things to be this severe only one month later:

    Beijing March New House Prices Plunge 26.7% M/M

    BEIJING (MNI) - Prices of new homes in China's capital plunged 26.7% month-on-month in March, the Beijing News reported Tuesday, citing data from the city's Housing and Urban-Rural Development Commission.

    Average prices of newly-built houses in March fell 10.9% over the same month last year to CNY19,679 per square meter, marking the first year-on-year decline since September 2009.

    Home purchases fell 50.9% y/y and 41.5% m/m, the newspaper said, citing an unidentified official from the Housing Commission as saying the falls point to the government's crackdown on speculation in the real estate market.

    March Home Transactions in 30 Major Cities Fall 40.5% Y-o-Y

    Housing transactions in major Chinese cities monitored by the China Index Research Institute (CIRI) dropped 40.5% year-on-year on average in March, a month when home buying typically enters a seasonal boom period.

    Transactions rose month-on-month in 70% of the cities monitored, including five cities where transactions were up by more than 100% on a month earlier, reported on Wednesday, citing statistics from the CIRI. [CM note: month-on-month not useful for transactions as volumes have pronounced seasonality]

    Beijing posted a decrease of 48% from a year earlier; cities including Haikou, Chengdu, Tianjin and Hangzhou saw drops in their transaction volumes month-on-month, according to the statistics.

    Meanwhile, land sales fell 21% quarter-on-quarter to 4,372 plots in 120 cities in the first quarter of 2011; 1,473 plots were for residential projects, the statistics showed.

    The average price of floor area per square meter in the 120 cities dropped to RMB 1,225, down 15% m-o-m, according to the statistics.

    Real estate is easy to track because it always follows the same progression. Sales volumes slow down, and people attribute it to the 'market taking a breather.' Then sales slump, but people say "prices are still firm," trying to console themselves with what good news they can find in the situation. Then sales really drop off, and prices begin to move down. That's where China currently is. What happens next is also easy to 'predict' (not really a prediction because it always happens), and that is mortgage defaults and banking losses, which compound the misery cycle by drying up lending and dumping cheap(er) properties back on the market.

    In that report back in March, I also wrote this:

    If China enters a full-fledged housing crash, then it will have some very serious problems on its hands.

    A collapse in GDP would surely follow, and all the things that China currently imports by the cargo-shipload would certainly slump in concert.

    This is another possible risk to the global growth story that deserves our close attention. How this will impact things in the West remains unclear, but we might predict that China would cut way back on its Treasury purchases if it suddenly needed those funds back home to soften the blow of an epic housing bust.

    If a more normal ratio for a healthy housing market is in the vicinity of 3x to 4x income, then China's national housing market is overpriced by some 60% and certain major markets are overpriced by 80%.

    Which means that the entire banking sector in China is significantly exposed.[/I]


    The reason we care if China experiences a housing bust is the turmoil that will result in the global commodity and financial markets as a result. Everything is tuned to a smooth continuation of present trends, and China experiencing a housing bust would be quite disruptive.

    Guest Post: The Breakdown Draws Near | zero hedge
    Last edited: Apr 19, 2011

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