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Problems with the Chinese Economy to Affect Palos Verdes

Posted by on May 19, 2014 in Uncategorized | No Comments

The Chinese Real Estate bubble is showing signs that it is getting ready to burst.  China has been mass building for years and many apartments sit empty.  The building has boosted China’s GDP and now it’s coming to a head.  We’ve seen a huge increase in foreign buyers in Palos Verdes in the past year.   Most are cash buyers and many do not live in the homes, rather they view buying and holding property in the U.S. to be a safe investment.

The increase in cash buyers in Palos Verdes has driven up prices somewhat.   The problem will be when the Chinese economy starts to feel the pain of a bubble bursting there, many will pull their money out of their U.S. Real Estate investments.  That will increase inventory and drive local prices down.

The article below is from The Financial Times and gives a good picture of where the Chinese economy is likely going.

If you are thinking of selling your property in Palos Verdes, San Marino or other areas popular with foreign buyers…now would be the right time to sell.  It seems the writing is on the wall that those areas will decline in value along with trouble in foreign economies.

Property sector slowdown adds to China fears
By Jamil Anderlini in Beijing

A Chinese worker cuts a steel pipe at the Industrial Museum of China, in Shenyang city, Liaoning province, China, 01 November 2013. The Industrial Museum of China covers an area of 80,000 square-meters. It was built and transformed in an old industrial area displaying the history of China’s industrial development. China’s purchasing managers’ index (PMI) for the manufacturing sector rose to 51.4 percent in October 2013 hitting an 18-month new peak since May 2012, the National Bureau of Statistics (NBS) said on 01 November 2013©EPA
China’s economy is sputtering as evidence mounts that a nationwide property bubble is on the point of bursting.
Virtually every indicator for economic growth in China turned down in April as the all-important real estate market saw sales fall 7.8 per cent in renminbi terms in the first four months from the same period a year earlier.

Investment in real estate is the single most important driver of the Chinese economy and a crucial factor in global commodity demand and pricing.
But in the first four months newly started construction projects fell 22.1 per cent compared with a year earlier, according to government figures released on Tuesday.
The sustainability of the Chinese real estate market has become a concern for policy makers everywhere as they start to worry that a property crash in the world’s second-largest economy could ripple round the globe.
The scale of China’s building boom and the country’s reliance on infrastructure investment for growth is unprecedented.
In just two years, from 2011 to 2012, China produced more cement than the US did in the entire 20th century, according to historical data from the US Geological Survey and China’s National Bureau of Statistics.
In an indication of just how exposed China’s economy is to a property downturn, Moody’s Analytics estimates that the building, sale and outfitting of apartments accounted for 23 per cent of Chinese gross domestic product last year.
That is higher than in the US, Spain or Ireland at the peaks of their housing bubbles.
Trouble in Chinese property also has implications for the financial system, in particular the shadow banking sector, which has lent huge amounts to developers and relies on highly priced land for collateral.
“Self-fulfilling expectations of falling house prices, financial difficulties among developers on the back of a highly leveraged economy with huge local government debt, and a fragile financial system with a large shadow banking sector, suggest the risks of a disorderly adjustment [in the Chinese economy] are real and rising,” said Barclays’ chief China economist, Jian Chang.
Partly as a result of slumping real estate investment, growth in China’s industrial production, a measure that correlates closely with gross domestic product, slowed marginally to 8.7 per cent from a year earlier in April.
Retail sales growth also slowed from 12.2 per cent expansion in March to 11.9 per cent in April.
In a worrying sign for western luxury brands that have become more reliant on Chinese demand in recent years, gold, silver and jewellery sales plummeted 30 per cent in April from a year earlier.
Electricity production, a closely watched proxy for economic activity in China, grew at its slowest pace in nearly a year in April, up 4.4 per cent from a year earlier, compared with 6.2 per cent growth in March.
In spite of much discussion of a “mini-stimulus” for China’s economy, Beijing has so far been reluctant to take strong actions to prop up growth.