According to Reuters, after a housing bubble that doubled values in recent years, prices are now falling nationwide in China. Banks are worried that a price slide of 20 percent could trigger panic selling. But residents and property agents in China say prices in many cities (including Shanghai and Beijing) have already dropped by up to 30%.
“People are worried. Especially if they have bought two or three apartments,” said Yu Mingjun. “Actually I am worried too. I can’t decide what to do. I’m thinking of leaving here.”
Prices have plummeted 20-30 percent in certain property developments in Beijing and Shanghai. Nationwide, the decline is so far more modest. Home prices fell slightly in October from September for the first time this year, official data showed, but private surveys indicated prices began falling in September and continued through November.
“If society turns negative on the property sector, especially if buyers think prices will fall, creating a sharp cooling of for instance 30-40 percent, I think that’s very serious,” said Hui Jianqiang, head of research for consultancy E-House China. More worrisome, the property market, which contributes about 10 percent of Chinese growth and drives activity in 50 other sectors, could drag the real economy to a hard landing.
Now, let’s talk about that famous “Ghost Town” in China – Ordos.
“Ordos is the first of a number of these ghost cities that will see huge price declines,” says Gillem Tulloch of Asianomics. The bigger issue, however, will be if declines of same magnitude reach the major cities.
“The degree of price declines you are seeing in Kangbashi (Ordos) give a preview of what you will see in major cities. I would expect price declines of 20% nationwide over the next 1-2 years,” Tulloch said. Tulloch points to plunging transaction volume as evidence of a property slowdown. His firm expects a hard landing, with China slowing to zero GDP growth for several quarters.
In Ordos, the government announced a bailout fund of between 7.5 billion and 10 billion yuan to support its beleaguered developers. Still, that may not be enough.
A commercial real estate agent there said that despite the government actions he was planning to return to his native Guangdong Province after six unsuccessful months in Kangbashi (Ordos). “There isn’t much commercial real estate here. You need private businesses for that, and here it’s all government money.”
Here is a video from NTDN about Ordos…