China Crash Predictions, Part 6 - Hart

November 30th 2010 - Telegraph

[Mark] Hart, who runs Corriente Advisors from Fort Worth Texas, has told potential investors in a presentation that China is in the "late stages of an enormous credit bubble".
When this bursts, the financier said he expects an "economic fall-out" that will be as "extraordinary as China's economic out-performance over the last decade".

The article goes on to detail what is going on in each problematic sector. The only thing that is really new is Mark Hart's estimate of China's debt to GDP ratio, which is 107% under conservative estimates and may top 200%.

February 2010 - The FirstPost

Meanwhile, Hart and Gave have set up a fund to bet that the Chinese economy is over-stimulated and heading for a
significant crash, as predicted in my report yesterday.

October 2009 - Dallas News

"They have built more factories, shopping malls, condos, roads and bridges than could ever be put to good use, even assuming a dramatic upswing in global growth," Hart said. "Growth in actual wealth has dramatically lagged growth in credit, growth in money supply and growth in GDP. This is not sustainable."

[Catch the rest of the China Crash Predictions Series]

China's Credit Supply Estimated to Top Targets by 6.7%

China's credit supply may top government targets

"The total credit supply for 2010 is likely to reach 8 trillion, exceeding the government target by 6.7 per cent, said Liu Yuanchun, deputy director of Renmin University's School of Economics.

New loans stood at 588 billion yuan in October . . .

Credit demand remains vigorous and new-loan growth may well exceed 7.5 trillion yuan next year if the policymakers do not adopt tough measures to contain growth, China Securities said in a report.

The Spin is In on Canada's Latest Housing Numbers

Dream of home ownership gets easier in B.C., RBC report says

B.C. homebuyers have won a temporary reprieve from the sharp drop in affordability since the middle of 2009, according to a national report released Monday by RBC Economics Research.

Ha ha ha. Awesome. Ignore any questioning of the wisdom of buying an inflated asset that sucks up 50% of your pretax income for the next 30 years.

"It was a combination of a drop in interest rates and some softening of pricing that lowered monthly mortgage payments," RBC senior economist Robert Hogue said . . .

Holy Moly people. Did you learn absolutely nothing from watching California's market blow up? Using monthly payments as the sole metric for affordability was the key to the entire debacle from the buyers' side. That's why teaser mortgages worked so well, because people were using such an incredibly short-sighted measure when signing their economic lives away.

You need to look at opportunity cost. You need to stress test your personal finances ten years into the future for rate changes. Also project the total equivalent rent for all shelter options and then look at the totals. Then you need to estimate the risks. What are the odds that this market is going to continue to go up? You also need to look at how long you plan on living in each shelter option, then factor in some not unlikely unplanned events. What happens if you get divorced? Need to change jobs? How much of a loss are you willing to take if you are forced to sell without regard to market conditions?

If you really want to learn from California, when you are done with these other analyses, ask yourself: How are you going to feel facing a $1.1 million mortgage when the equivalent house down the street sells for $700,000. Ah the "Dream of Homeownership" . . . Dream, nightmare, same difference.

Added: The Australian decline from peak is also being sold as the greatest buying opportunity in the world. Crazy like a fox, I suppose. But still crazy.

Vancouver Canada Housing Bubble Showing Peak

A Tale of Two Bubbles in Chart Form: USA and Canada

Canada and Vancouver House Price Bubble Chart September 2010

The Red and Bronze Lines are from Teranet House Price Index and the Grey Line is from S&P Case-Shiller House Price Indices

Prices are down month on month in Canada overall 1.07%, Vancouver 0.34%, Toronto 1.58%. October 2010's numbers will not be available until Christmas.

Hong Kong Resales within 12 Months up 114% Year on Year

Housing bubble risk intensifies in Hong Kong

The situation has been deteriorated suddenly, Eva Cheng, Secretary for Transport & Housing, told legislators on Wednesday. Short-term resale transactions are increasing rapidly in Hong Kong, she said, adding in the first nine months of this year the number of resales within 12 months of acquisition rose 114 percent compared to the same period last year.

I don't know about "suddenly" unless we are discussing geologic time.

Property Developers Worst Performers on Shanghai Index

Ghost Towns In China Due to Property Bubble

The worst performing group on the Shanghai Composite Index this year are China’s property developers, and BNP Paribas says to expect the correction in Chinese real estate prices due to lending curbs and tighter money to intensify into 2011.

The post goes on to warn that a housing slowdown will impact the rest of the Chinese economy.

Private housing accounts for 13% of total investment in urban areas, and home construction accounts for 14% of all workers in urban areas, according to dailymarkets.com.

Fantasy Comments by Byron Rose Still Making the Rounds

The Real Estate Buyers Association of Australia president's comments from The Daily Telegraph November 17th sure have legs. The comments contain some points (much repeated) worth noting to point and laugh at later. We seem to be in the wishful thinking phase of this bubble. Things are getting wobbly and those with a large vested financial interest in keeping the markets inflated get defensive and grab hold of any evidence to support a solid reality to justify bubble prices. This phase is also marked by these same people attacking analysts and bloggers as causing the downturn. Which is always a hilarious accusation.

The only part of this article which is true, is the "unprecedented international land grab". Yup, but you say that like it's a good thing. Leaving it out there as a metric of something other than excessive foreign money distorting the local market. These outside buyers are not smarter than the local buyers, they are in a frenzy. That doesn't add up to a precedent to follow or anything.

Doozy number one:

“They know the market is depressed - they are making huge capital gains and are reinvesting into the market.”

"Depressed"? Where to even go with that? Take a look at any Australian property price chart. Like maybe this one. That price scale ought to be plotted logarithmically it is so elevated.

CBRE senior managing director of international investments Rick Butler blamed Australian banks for the situation. “The banks are saying they are lending but in my view they aren’t,” . . .

The banks actually maybe learned a lesson from the U.S./U.K./Ireland crash you are saying? Banks in the U.S. were twisting the arms of appraisers to raise valuations. If they had kept valuations realistic, their books would look better and we wouldn't have 919 banks on the unofficial problem bank list. Still. Years after the crash. Complaining about bank valuations being too strict is the same as arguing that you want the subsequent downturn to hurt as long as possible.

“The foreigners are there because they see Australia as safe, secure and actually having growth, which puts us in a much better position than old Europe and the US.”

Growth based on what? Exports and what else? Real Estate.

Australian Auction Clearance Rates for November 21 Reinforce Downward Trend

Clearance rates made another downward jog last reporting period.

Sydney: 50.6%
Melbourne: 54.5%
Brisbane: 18.5%

Latest Auction Results from RPdata.com

Australian Clearance Rates Chart, October - November 21 2010

Agent: Chinese Represent 80% of High End Home Sales in Vancouver

Long narrative style article in the Globe and Mail full of anecdotal evidence.

Vancouver attracts only 15% of new immigrants to Canada, but it attracts a full half of the 10,000 very wealth immigrants who come. It is a lifestyle destination, not an industrious destination.

Is Vancouver in a Real Estate Bubble?

Lui explains why she’s so confident the home will sell: “It will appeal to a buyer from China.

Now long-term Vancouverites and incoming Chinese are seeking almost exactly the same thing—except, Lui says with a laugh, “we can’t afford it.”

True. When Lui says “we,” she’s talking about the locals, people who make their living in Vancouver.

If “buyers from China” answers the “who” question about Vancouver’s unique real-estate market, the follow-up question—“Where is this leading?”—is harder to answer. The torrid affair between eastern Asia and Vancouver real estate, now in its third decade, is actually a love triangle from which each party derives very different things. When wealthy Chinese immigrants buy property in Vancouver—and they utterly dominate the top end of the market—they’re actually buying a form of insurance.

And the kicker:

The buyer will likely be from China as well: Lui estimates that up to 80% of recent sales in this price range have been going to buyers from mainland China.

So, you have a situation where the prices have moved beyond the range of the locals. They are set by immigrants and foreigners instead. And should the immigration and foreign investment dry up, what does the market price revert to? Note that in this scenario, housing itself as an economic engine (1/5 of the country's GDP) also dries up, leaving the locals a bit poorer yet.

Hong Kong 15% stamp duty on homes sold within 6 months

The battle against the bubble continues. Flippers targeted.

China Day Ahead: Reserve Ratio Increase; Hong Kong Real Estate

Hong Kong intensified a yearlong battle to curb surging home prices with additional taxes and higher down payments a day after the International Monetary Fund warned that asset inflation may derail the city’s economy.

Homes sold within six months of purchase will incur a 15 percent stamp duty from Nov. 20, Financial Secretary John Tsang said in a briefing. Down payments for homes costing HK$12 million ($1.5 million) or more will rise to 50 percent, from 40 percent. A stock gauge of developers in Hong Kong fell for the eighth day in nine ahead of the announcements.

China Trust Firms Halt Property Loans

China's trust firms halt property loans -sources

Seeing risks in rapid credit expansion to real estate projects, the China Banking Regulatory Commission last week instructed trust firms to assess the risks posed by their portfolios in a fresh move to rein in the red-hot property market.

Property-related trust investment totalled 150 billion yuan ($22.6 billion) in the first 10 months of this year, compared with 40 billion yuan in the whole of 2009, according to Use Trust Studio, a private data provider. ($1=6.639 Yuan)

On the heels of the false rumors last week regarding banks halting property loans. This seems a bit better sourced.

Report: China prices to fall 20% in 2011 (Can it really only fall 20%?)

China's property prices to down 20% next year, report says

BEIJING, Nov. 21 (Xinhua) -- China's property prices are likely to decline almost 20 percent next year starting from March or April, according to a report issued by the Beijing-based Renmin University of China (RUC).

Meanwhile, Liu ruled out a steep correction in the nation's property market, saying that tight financial situation will not cause a sharp price plunge and the market is expected to realize a soft landing.

The problem with a soft landing call is the prices quadrupling was speculator driven in the first place. Speculators, once the market falls even 5-10%, are wiped out. Broke. They cannot form a floor in the market to keep it from falling farther. The floor will be formed only when investors looking for rental properties and future owner-occupiers step in and start buying and they won't step in until price to rent ratios and price to income ratios return to rational. Guess what, that's a long way down from a 20% "soft landing". A heck of a long way.

Tied to the U.S. Dollar, Hong Kong Cannot Control Its Future

IMF warns Hong Kong about runaway housing prices

Hong Kong’s fixed exchange rate system with the US dollar means Hong Kong essentially imports the interest rates set by the Federal Reserve, currently very low.

In other words, Hong Kong can’t raise interest rates to counter a housing bubble and inflation.

In lieu of raising interest rates, Hong Kong has been raising downpayment requirements, to no avail. Sound familiar?

Mish Thinks Australia's Housing Bust Has Begun.

In an awkward analogy, perhaps meant to soften the blow for those reading it from Downunder, Mish lays out what he sees as the state of the real estate market in Australia.

Partied Out: A Recap of Australia's Now Imploding Housing Bubble

Meanwhile, the group of bar owners and bartenders known as the “Big Four” were forced to pass along the central distributor's price hikes. Nonetheless, the masses kept drinking and partying. It was quite the spike government officials threw into the punch!

In an act of desperation, the “Big Four” bar owners finally raised prices even more than the wholesale liqueur distributor. They did this after becoming worried about the consequences of drunks passing out on the floor, in the street, and in the outback, unable to pay their "bar tabs".

It certainly took longer than I expected but signs suggest the Australia housing boom is finally over. The bubble will take years to unwind.

He goes on to cite the increase in inventory, the poor result of the Sydney Opera House auction, a fall in construction financing, and a decline in general business conditions.

I think there needs to be a bubble and bust in bubble bust calls before the actual bust is in. I'm inclined to believe the higher inventory is home owners who decided they are actually investors who would like to lock in their profits, now, thank you. Do they really have to sell, or are they just hoping to? Market wise those are not the same condition. It's when owners become desperate sellers that the air really begins to leave the bubble. Strategic cash-outs are not the beginning of the end. As well, a general decline in business conditions, given that most mortgages are adjustable, could be the adjustment in mortgage rates sucking up household discretionary funds, not a broader decline in employment or pay rates.

Basically, this doesn't feel like the end yet. If the government *dropped* rates in a desperate attempt to shore things up in the broader economy . . . that would feel like the downslope was really in. We're in the ego stage where people fight over meta realities still. They are not fighting over solid trends in numbers yet.

China Crash Predictions, Part 5 - Rickards

March 2010 Examiner.com

[Jim] Rickards explains his theory by comparing China’s central bank and economic management to that of a typical hedge fund. China is hedging some of its economic risk by “buying dollars and short-selling Yuan.” in hopes to offset risk in their economy. By doing this however, it is stopping the Yuan from gaining strength. The weakening Yuan could be the tipping point causing an inflationary risk to the market.

Ah, now we are getting into triggers. And what is China fighting right now?

Just today:
China's suspends diesel exports as country fights inflation

The decision by state-owned Sinopec will help meet domestic shortages blamed on a government conservation campaign and possible hoarding by state oil companies.
Politically sensitive food costs surged more than 10 percent as inflation jumped to 4.4 percent in October, well above the government's 3 percent target.
Diesel supplies ran low after thousands of factories bought diesel generators to cope with power cuts imposed by authorities to meet energy-saving goals. That boosted already strong fuel demand.

Speaking of misallocation of capital.

March 19 Analyst Wire Interview

Now, what they're doing is they're leveraging up in that sector. And there's a very large shadow banking system in China that's not well known. People look at the banks and they say well they're fairly healthy, and they are. But banks always look healthy until the values collapse and that's when they start to crash themselves.

But there are a lot of unregulated lenders. There's a lot of in affect defector banks that are lending and fueling and this. And then the local governments, the provincial governments are adding to the problem very much like Fannie and Freddie, which is that their source of revenue is from these property flips.

They need to get these local governments out of the business of, you know, stoking the flames of property speculation, so to speak, and raising interest rates would be another good way to do it.

Very similar to the United States, I mean what's developing in China in the property sector looks like the U.S. from 2002 to 2006. Again, there's a real economy there but there's this bubble growing on the side. We know when bubbles break the contagion spreads to other sectors and that's the concern.

[Catch the rest of the China Crash Predictions Series]

A closer examination of land sales in Perth reveal all is not well

It's busy today at The Australian.

Statistics hide fact demand has gone west

The Real Estate Institute of Western Australia has warned not to read too much into the 12.5 per cent increase in the September quarter median price of land.
. . . there has been an increase in sales of more expensive lots closer to the city and fewer sales at the more affordable urban fringe.

But the valuation firm says everyday examples paint a varied picture.

At the upper end, a premium vacant lot in North Coogee, a southern beachside area near Fremantle, recently sold for $1.025 million after being purchased for $2.2m in November 2007.

Given that some other lots in the street originally sold for more than $3m, there is more pain to be felt, HTW says.

This happened in California too. The mix started to shift, making it difficult to determine what exactly was happening. Firesales of a handful of high end properties more than makes up the difference for a decline in medium value properties, resulting in the average sale price going up (or in the case of California, making it appear to bottom out early).

Australian Treasury Official Warns of House Price Bubble

Treasury warns about home price bubble

"(I) know there are very supportive fundamentals, but prices rose by 50-60 per cent in three to four years in the early part of this decade, with largely unchanged fundamentals, so they can have a life of their own.

"And given what's happened elsewhere I'm far less sanguine about this - and the interplay with debt - than in the past."

But meanwhile, back at the ranch:

A spokesman for Wayne Swan said yesterday the Treasurer retained the view that Australia did not have a property bubble, citing recent reports and statements by Westpac and the RBA. "Of course, we expect our officials to test and debate policy within the department - it is an important and normal process of government," the spokesman said. "However, it is the considered position of the Treasurer and the Treasury that our housing market reflects the fundamentals of supply and demand and not a bubble - specifically that Australia is simply not building enough new houses."

China Crash Predictions, Part 4 - Chanos

The earliest Cassandra in this little mini-series (so far), famed for seeing big problems early and cashing in on them, James Chanos. The articles below stretch all the way back to September 2009, long before the cool kids got into the making calls on China game.

AdvisorAnalyst.com September 2009

Major investors are starting to question whether Beijing is telling the truth. "I think the story is getting harder and harder to believe," says widely followed billionaire investor and hedge fund manager Jim Chanos.

Business Insider November 2009

Chanos is reportedly attempting to short the entire Chinese economy. What's fueling the short case against China?

The $4.3 trillion Chinese economy is under-performing despite a $900 billion stimulus program.
China seems to be cooking its books. For instance, it reports that car sales are surging while gasoline consumption is flat. Is that realistic? Or are state run Chinese companies just stock-piling cars?

CNBC December 2009

Chanos points out a stark irony that investors who decry government involvement in US companies are bullish on the Chinese markets, despite the fact that the country's government can "fine tune" the economy to their liking. He is also skeptical of the country's GDP numbers, calling them "massively inflated by under-depreciating a very, very, very shaky capital asset base."

January 2010 NY Times

Its surging real estate sector, buoyed by a flood of speculative capital, looks like “Dubai times 1,000 — or worse,” he frets. He even suspects that Beijing is cooking its books, faking, among other things, its eye-popping growth rates of more than 8 percent.

“Bubbles are best identified by credit excesses, not valuation excesses,” he said in a recent appearance on CNBC. “And there’s no bigger credit excess than in China.”

I also liked his notion that GDP is a residual, not a target. By making it a Communist Party target, China guarantees excess growth.

Fortune November 2010 - Chanos: Right or wrong?

Housing prices are down in major cities while supply is growing: New residential real estate investment alone accounted for 14% of China's GDP in 2009, and housing prices have started to come down, though the overall supply is still growing sharply in 2010. Even Goldman Sachs forecasts a 10% to 20% housing price decline between now and the end of 2011.

The trouble the early warning folks have is being wrong, completely wrong, in the short to intermediate term. Many blogs and a small handful of economists came in for years of berating for their bearish calls on the U.S. real estate market. Years of it.

Don't underestimate China's ability to pump this thing up much longer than would seem possible to the reasonable mind.

Special award as always to Shaun Rein
Jim Chanos is wrong there is no China Bubble

There are, however, fundamental differences between China's real estate and consumer finance markets and those of the U.S. and Dubai, which Chanos compares them to. First, when buying residential properties, consumers in China have to put down 30% before taking out a mortgage. For a second home, they have to put down 50%, no matter what their net worth. Therefore, China doesn't have the reckless consumer behavior that occurred in the U.S., where people with bad credit were taking out huge loans from Countrywide with no money down, or were buying 10 homes without deposits in the hope of flipping them in a few months. People who buy homes can afford it.

People with $4k of annual disposable income are buying apartments priced at $150k because they can afford them, people. They can afford them so much they buy them and don't even live in them. And no one, but no one, is borrowing money outside the banks so they are all subject to these new restrictions, nor are they flipping houses within buying clubs or leveraging, or any of that stuff. No one. These people can afford these houses. Shew, glad to hear it. For a minute there I thought there may be a problem.

[Catch the rest of the China Crash Predictions Series]

Vancouver Island Sales and Prices Take a Hit

For October 2010, number of sales down 46% year on year.
Prices down 4% to $318,619 year on year.

Comox Valley Record: Home sales decline

Australian Clearance Rates Hold New Lower Level

Auction Results per Individual State - Nov 14, 2010

Chart of Auction Clearance Rates for Melbourne, Sydney, Brisbane for October 2010 - November 14 2010

Clearance rates for the two largest cities that were consistently 65% are now hovering from 53-55%.

The way I see this playing out is initially the top end will hold out longer as that is the preferred investment of the Chinese investor, while the middle value sales will slow. I included Brisbane on here, just for the color ;-) It's almost too noisy to bother looking at it. When I get a few more months of data in the spreadsheet, I'll smooth it out.

Australia Cascading Bubble Inputs Redux

While we await the Nov 14th clearance rate report which might let us know if sales are scrambling at the edge of the cliff or just glitching a bit, I made a quick overlay as a follow up to Cascading Bubble Inputs Australia.

Australia House Price Chart Overlaid with Terms of Trade

Input 1 is the same as everywhere else, low interest rates. Input 2 kept Australia from falling along with everyone else (the U.S. is shown for comparison). The influx of money from selling to China can be measured a few ways, but here I have included Terms of Trade from this government site. I overlaid it with the Economist.com Clicks and Mortar Chart.

It's all about liquidity. Too much money chasing too little housing. And while the shortage of housing may not ease in the medium term, the excess money is less of a certainty.

China Crash Predictions, Part 3 - Shih

For the record, it does not appear that Shih believes in a crash, just a massive bailout. He believes the Chinese government will back up the banks and since everyone knows this, there will not be a panic.

March 2010, Victor Shih, quoted in Harvard’s Rogoff Gives Legs to China Crash Talk: William Pesek

Victor Shih of Northwestern University in Evanston, Illinois, is focusing on another $1.6 trillion figure. That’s how much debt he estimates China’s local governments are sitting on. If the argument Shih fleshed out in a Feb. 8 piece in the Wall Street Journal is correct, local debt alone is one-third of China’s 2009 gross domestic product and 70 percent of foreign- exchange reserves.

Also from March 2010, Victor Shih Sees Bank Bailout Redux

According to Victor Shih, assistant professor of political science at Northwestern University — and a regular contributor to The Wall Street Journal’s opinion page (see articles here and here) — the massive increase in new lending China’s banks embarked on last year may mean that in coming years China’s banks will be faced with a huge spike in nonperforming loans and will have to again turn to the government, cap in hand, to bail them out.

June 2010, Shih: Moral Hazard and China's Banks

In China, just as in the West, banks and businesses have grown accustomed to gambling with other people's money on the assumption that the government will bail them out if they lose.

[Catch the rest of the China Crash Predictions Series]

TD: Canadian Home Sales Continue to Improve

Move along. Nothing to see here.

Release: Canadian home sales continue to improve in October

• If you’ve ever wondered what a soft landing in housing looks like, this may well be it. The string of three consecutive gains in monthly sales helps confirm a stabilization of market activity. It appears that Q3 sales marked a trough with 98,000 units sold. If sales in the remainder of Q4 simply held steady at the October level, this would mark a near 10% improvement from Q3. With only two months of data left in the year, year-to-date sales are roughly in line with those of last year near 375,000 units.

Pouring the diverse markets of Canada into one big pot seems almost guaranteed to average things out. Faced with Vancouver's numbers alone, I'm curious how he would spin things. The September report doesn't split out any provinces or cities either for a special look.

• Sales have been well supported by low and decreasing borrowing rates. As of late October, typical fixed 5- year mortgage rates had dropped by a full percentage point since April 2010, hitting all-time lows.

Shorter version: We lowered the cost of borrowing and people borrowed more. Okay, so the implication is your "stable" market relies on bribed buyers and excess money in the market. Got it.

Australian Auction Clearance Rates Hit Two-Year Low (Update)

Home auction rates sink to two-year lows

Update: Rates fell again (for the week ending Nov 7) for Sydney to 53.8% and Melbourne to 54.8%. Perth is at 16.7% and Brisbane at 29.2%.

Auction clearance rates in Australia's two biggest cities dropped to nearly two-year lows over the weekend after the Reserve Bank's surprise interest rate rise chilled buyers' demand.

Clearance rates in Melbourne, dropped to 61 per cent from 67 per cent the week before, according to the Real Estate Institute of Victoria (REIV). In Sydney, they fell to 54.6 per cent from the previous week 57.5 per cent, according to Fairfax-owned Australian Property Monitors (APM). 

Chinese Buyers are 40-50% of Vancouver Presales : Colliers

These are Chinese Mainlander Buyers, specifically.

Chinese demand overseas property opportunities

“Buyers from the Chinese mainland represent between 40 and 50% of the current market for pre-sale projects in Vancouver, for instance,” says Colliers, “and perhaps a greater percentage for the high-priced single-family residences in Vancouver's most prestigious neighbourhoods.”

Chinese Buyers are 20% of Sydney Residential Sales

Chinese buyers represent 20% of Sydney Residential Sales, up from 14% in 2009. 35% of Hong Kong sales up from 30%.

China towns (Financial Times)

Some 475,000 Chinese have assets of $1m or more, according to the wealth management strategy firm Scorpio Partnership.

Beijing limits its citizens to taking $50,000 out of the country each year, but many thousands of Chinese quietly skirt round these capital controls.

China Limiting Property Purchases by Foreigners

It's unclear what kind of an impact this is going to have, beyond the implicit admission that other curbs are not taking hold as effectively as the government wants. Other analysts have been warning that given the liquidity, limits on property will simply drive money into stocks, which seems a reasonable assumption. (Or precious metals?) What does a China crash do to precious metals? Is it driven up by a mad scramble for safety, or is it driven down by a sell off to cover other losses?

China Limits Property Purchases By Foreigners

China on Monday announced new limits on the ability of foreigners to buy residential or commercial property on the mainland, in its latest effort to curb the inflows of speculative money into its economy and ease inflationary pressure.

"Targeting foreign investors is the easiest administrative means for the Chinese government to undertake because they represent a very small interest group," Mr. Liu said. "But when it comes to curbing hot money inflows, the measures won't be that effective."

Call for Easing Australia Foreign Investment Rules

Come on people, these bubbles aren't going to inflate themselves.

Our foreign investment rules should be eased, says OECD

The OECD estimates that if investment restrictions were removed, foreign direct investment into Australia would "increase noticeably over time".

At least she's honest enough to point out the flaw in her clever plan.

Australia's foreign liabilities are virtually all held in Australian dollars or hedged back to Australian dollars. As foreign investors seem happy to hold assets in Australian dollars, domestic borrowers are protected against exchange rate risks. During the global financial crisis this helped shield the country against the increased volatility of the exchange rate.

China Crash Predictions, Part 2 - Rogoff

Bloomberg July 2010 Kenneth Rogoff this round with the grabber headline of "Rogoff Says China Property Starting to ‘Collapse’"

China’s property market is beginning a “collapse” that will hit the nation’s banking system, said Kenneth Rogoff, the Harvard University professor and former chief economist of the International Monetary Fund.

More comments from Rogoff from March, 2010 in this article. Harvard’s Rogoff Gives Legs to China Crash Talk: William Pesek

Video Here

"The data is not very reliable. . . . Exploding property prices and leverage. Doesn't mean you're going to have a crash tomorrow, it might be five years . . ."

[Catch the rest of the China Crash Predictions Series]

China Crash Predictions, Part 1 - Faber

I'm going to start my hunt for triggers by reviewing others' predictions.

From May 2010: (Marc Faber quoted in Businessweek) China May Crash in 9-12 months

China is “on a treadmill to hell” because it’s hooked on property development for driving growth, Chanos said in an interview last month. As much as 60 percent of the country’s gross domestic product relies on construction, he said. Rogoff said in February a debt-fueled bubble in China may trigger a regional recession within a decade.

No mention of what may trigger the actual collapse. Clearly it has only inflated since this prediction, which is due January through April 2011 to come true. Seems like it's got at least another Friedman Unit to a year ;-)

The crash itself will be money exiting the China zone. Money so far, continues to rush in, minus Chinese investments abroad (like financing Manhattan high rises).

Housing prices nationwide may fall as much as 20 percent in the second half of the year on government measures to curb speculation, BNP Paribas said April 23. Under a stress test conducted by the Shanghai branch of the China Banking Regulatory Commission in February, local banks’ ratio of delinquent mortgages would triple should home prices in the country’s commercial center decline 10 percent.

Something about this expectation that government curbs will actually do something. Speculators do not, by and large, work inside the system being curbed . . .

[Catch the rest of the China Crash Predictions Series]

Riding the wave: China is in a Bubble but is still the best investment opportunity

2/3rds surveyed by Bloomberg said China had a housing bubble, but 33% still ranked China #1 for investment opportunity for next year, ahead of Brazil, India, and U.S.

China Real-Estate Bubble Concern Fails to Deter Global Investors

Asian investors are more likely to say China is in a real estate bubble. Seventy-four [74] percent of respondents in Asia hold that view, compared with 64 percent in the U.S. and 63 percent in Europe.

Rising real estate values in China reflect the abundance of “cheap money,” said poll respondent Gordon Murray, senior credit analyst at Belle Haven Investments Inc., in White Plains, New York. “Anytime there’s a lot of idle money and a desire for yield, you can have a boom.”

Sydney House Price Gains to Slow -- RP Data

Good news, Australia, the banks on the hook for your mortgages are certain, really certain, that there will not be a crash.

Sydney Home Price Gains to Slow After 13% Climb, RP Data Says

Prices in Australia’s biggest city have risen an average 9.1 percent in the 12 months ended Aug. 31 to A$580,000 ($582,000) for houses and A$450,000 for apartments, according to a RP Data study prepared for St. George Bank Ltd. Prices are expected to stay at the current level through 2011, it said.

Home values across Australian capital cities rose 8 percent in the year ended Aug. 31 because of faster population growth and constrained supply in one of the few economies to skirt last year’s global recession. Organizations including Westpac Banking Corp., Commonwealth Bank of Australia and Fitch Ratings have said those factors, as well as a lack of speculative buying, will keep the market from collapsing.

I had the impression that the Chinese were speculative buyers . . .

Lots of articles/columns on exactly this topic of how stable everything will be through 2011. Timely enough, Barry Ritholtz has a column on this exact topic: Kiss your assets goodbye when certainty reigns

China October 2010 House Sales

Prices climbed 8.6% year on year, but sales dropped 11.2%.

China’s Home Prices Grow at Slowest Pace in 10 Months

Property prices in October rose 0.2 percent from September, according to today’s data.

Sales volume dropped 11.2 percent from the previous month, while the value fell 7.7 percent from September.

The value fell less than the volume, which implies the high end is holding out a bit more.

91% of Asians surveyed want to buy property

Expect upward price pressure to continue until something drastically shifts sentiment.

Colliers: Asian property investors feeling good

91 per cent of Asian respondents to the survey said they wanted to buy property in their domestic region and 73 per cent of Asian respondents expect to expand their property portfolio over the next year. Shanghai followed by Hong Kong and Singapore were the most desired locations for commercial property investments over the next 12 months, while many respondents showed interest in second-tier Chinese cities like Hangzhou and Nanjing for residential investments.

The survey showed a strong desire in Asian respondents to invest outside of their home countries, with 59 per cent saying they wanted to buy property overseas as opposed to just 30 per cent of all respondents

It's time to start reviewing what happened last time, to find likely triggers. There is little agreement about what happened in 1997, but that does give us a menu of possibilities, one for every theory.

Wikipedia 1997 Asian Financial Crises

Other economists, including Joseph Stiglitz and Jeffrey Sachs, have downplayed the role of the real economy in the crisis compared to the financial markets. The rapidity with which the crisis happened has prompted Sachs and others to compare it to a classic bank run prompted by a sudden risk shock. Sachs pointed to strict monetary and contractory fiscal policies implemented by the governments on the advice of the IMF in the wake of the crisis, while Frederic Mishkin points to the role of asymmetric information in the financial markets that led to a "herd mentality" among investors that magnified a small risk in the real economy. The crisis has thus attracted interest from behavioral economists interested in market psychology. Another possible cause of the sudden risk shock may also be attributable to the handover of Hong Kong sovereignty on 1 July 1997. During the 1990s, hot money flew into the Southeast Asia region but investors were often ignorant of the actual fundamentals or risk profiles of the respective economies. The uncertainty regarding the future of Hong Kong led investors to shrink even further away from Asia, exacerbating economic conditions in the area (subsequently leading to the depreciation of the Thai baht on 2 July 1997).[10]

China will allow local authorities to control gains in home prices

Ah, the intersection between central control and markets. It's like merging two expressways but doing it with a stop sign. This should be fun to watch.

China to Allow Control of Home Prices

Nov. 9 (Bloomberg) -- China’s government departments are drafting rules that will allow local authorities to control gains in home prices, the official business newspaper Securities Times reported today, citing people it didn’t identify.

Provincial regulators may be allowed to limit the selling prices of homes and cap profits for developers if prices gain sharply, the Shenzhen-based newspaper said.

I really can't wait to watch this.

China’s western city of Chongqing is ready to introduce a property tax, the Chongqing Morning Post reported yesterday, citing the local housing bureau.

We'll see if increasing the holding costs doesn't just drive the investors to flip more aggressively to cover this new expense. Or, since this is happening one region at a time, if the tax is egregious enough, will investors begin to sell out of this area first? And, who are they going to sell to without taking a loss?

Vancouver October 2010 Prices Holding Firm, Sales Down

The Real Estate Board's website is finally working after glitching all last week . . .

October 2010 Statistical Report

Prices in Vancouver remain relatively flat, but sales volume has declined across the board.

Year on year sales of detached properties decreased 34.4%. The price increased 6.3% to $796,883.

Year on year sales of apartments declined 38.8%. The price increased 2.4% to $390,074.

Year on year attached property sales declined 38.2%. The price increased 4% to $487,530.

Chinese investors flood Hong Kong home buying convention

Chinese investors may have shied away from the Sydney luxury auction but they are still shopping in Hong Kong.

China Battle to Avoid Housing Bubble sends Investors to Hong Kong

Nov. 9 (Bloomberg) -- Lam Yuet-fung expected 1,000 people a day to visit his booth at a five-day convention in Shenzhen starting Oct. 1 to inquire about buying homes in neighboring Hong Kong. By day four, more than 10,000 had stopped by.

Bellwether Opera House Auction Shows Strain on Markets

Sydney Opera House Luxury-Home Auction Misses Target

An auction of Australian luxury homes held at the Sydney Opera House raised A$4.1 million ($4.1 million), less than the A$30 million of properties that were put up for sale, less than a week after borrowing costs increased.

Only two out of the 11 homes on offer were sold.

The properties were marketed in Australia and Asia and drew interest from bidders based in Singapore, China and Indonesia, the organizer said.

But, the interest rate's to blame. Of course.

China's Liquidity and Vancouver's Housing Bubble in Chart Form

I took the MLSLink HPI data from the Greater Vancouver Housing Board and the Constant Quality Price Index chart from Evaluating Conditions in Major Chinese Housing Markets by Wu, Gyourko and Deng's working paper of 2010 and overlaid them.

Red line is Vancouver residential detached house prices in dollars (left hand labels) from MLSLink HPI, the grey (nominal) and black (real) lines are Wu, Gyourko and Deng's Constant Quality Price Index for Newly-Built Private Housing in 35 Major Chinese Cities (right hand labels).

From 2005 you can see Vancouver's prices responding like Ireland, the U.S., and the UK to the pressure of low interest rates. Up and up, but then comes the crash and down the prices begin to plummet. But a floor appears and then another surge upward, suspiciously forming a deflection point exactly where China's happened. That's the Chinese government's stimulus program.

Chart of China House Prices vs. Vancouver House prices 2005-2010

The same effect we see in Australia (Cascading Bubble Inputs, Australia) is present here (I'll redo that as a combined chart when I get a chance). Canadians credited the Winter Olympics for the double peak in house prices. I submit that it was, more so, China's insane excess liquidity.

While the Chinese buy up Australia, Australia buys up the U.S.

Dollar parity and considerably lower taxes lure Australians to buy up depressed properties in the U.S.

Investors Snap Up Homes for Cost of a Car

"Investors are now seeing incredible value buying in America where they can get homes that were $300,000 in 2007 for $35,000 with cash (rental) returns between 15 to 25 per cent net after expenses," he said.

One South Australian investor to take advantage of the "great investment opportunities" in the US is Sue Wright who, with husband John, is building a property portfolio to fund their retirement savings.

Shanghai luxury home sales continue to soar

Shanghai Luxury Home Sales Volume at 5-Year High

Nov. 5 (Bloomberg) -- Shanghai new luxury home sales volume in October soared 82 percent from September, the highest monthly gain in five years . . .

Luxury property prices fell 1.5 percent from September to an average price of 56,200 yuan per square meter.

Sounds like there is still plentiful supply of new units.

Luxury property sales drove a 3.1 percent gain in Shanghai home prices in October from the previous month, according to UWin.

The introduction of a property tax may cause housing prices to drop between 15 percent and 20 percent, Citic Securities Co. said Nov. 3. The tax may affect economic growth by 0.48 percentage point to 0.64 percentage point by slowing real-estate investment, analysts led by Zhu Jianfang wrote in the note.

Good article.

Australian bank regulators intentionally making life harder for their domestic banks

Not sure where this fits into the bigger picture, but it caught my eye.

Australian Government May Give Foreign Banks a Boost

Westpac Banking Corp., Australia & New Zealand Banking Group Ltd., National Australia Bank Ltd. and Commonwealth Bank of Australia have come under the fire of lawmakers for pushing up lending rates at a faster pace than the central bank's key rate, to maintain bumper profits and tackle higher funding costs.

CBA, for example, surprised borrowers this week by raising its variable mortgage rate to 7.81%, an increase of 0.45 percentage point—0.2 percentage point beyond the central bank's increase earlier the same day. For consumers, already under pressure from the rising cost of living, this adds about 100 Australian dollars (US$100) a month to the average A$300,000 mortgage.

When does this pressure start to exert itself on the default rate? And then when does the default rate start to exert pressure on prices?

Australian Treasurer Wayne Swan, a vocal critic of the country's banks, has promised a sweeping regulatory overhaul within six weeks. In addition to government guarantees for the mortgage-backed securities, measures being discussed include tax changes and reduced fees for changing banks.

Wait wait wait, you WANT to put the Australian taxpayers on the hook for all this? Seriously?

Vancouver Housing Starts up 92% Year on Year for September

According to CMHC (Canada Mortgage and Housing Corporation) new housing starts rose 92% year on year in the Vancouver Metro area in September 2010, totaling 1644 starts. The growth in single detached was only 7% while the growth in "others" was 156%. This compares to a 12% decline for single detached and a 36% increase in "others" for Canada overall. The seasonally adjusted annual rate for dwelling starts in September was 19,100 for Vancouver. This is an increase of 2000 units over last month. Comparatively, Montreal and Toronto decline around 2000 month to month on the annual rate.

Shanghai investors favor Australian houses

Ms. Wang bought a villa and four apartments in Australia in short three days with a total turnover nearly 40 million yuan.

 Shanghai investors are very familiar with the property market in Australia, in particular, in Queensland's Gold Coast and Brisbane. 

Li believes house prices in these two places still have much room to continue to rise compared to prices in Sydney and Melbourne where property prices were pushed higher two years ago. 

Bubble Warning from hedge fund trader in New York

Copper Prices Jump as China Doubles Usage

Not all signs are positive. China's expansion is creating a bubble, according to hedge fund trader Chanos, founder of Kynikos Associates LP in New York. He told an investment conference sponsored by Grant's Interest Rate Observer on Oct. 19 that 17 percent of Beijing office space is vacant and rents there fell 22 percent last year. In Shanghai, 12 percent of offices are empty and rents fell 26 percent, he said. 

"Large-scale capital projects grow sillier by the day," Chanos said.

Bank of America may let stake shrink in China Construction Bank Corp

BOA 'unlikely' to join rights offer

Bank of America may sell its rights, worth about US$1-billion, to third parties, cutting its stake from nearly 11 to 10.2 percent.

(The source for this info wanted to remain anonymous according to a longer article.)

Bank of America, Li Ka-Shing Reduce China Bank Stakes -- Bank of America sold off $2.8 Billion in Jan 2009. The original acquisition was in 2005 for $3 billion. I have to say, their timing was excellent.

Demographic trends work against price stability in Vancouver

As boomers retire, more houses will come on the market. The low rate of outright ownership will help to slow this exodus, however, as boomers may be unable or unwilling to cash out just above their mortgage balance when it IS time to go.

TD Canada Trust Boomer Buyer's Report

. . . only 24% of B.C. boomers own their home mortgage-free. Nearly one third of B.C.'s boomer homeowners have more than 60% of their mortgage left to pay off.

. . . are least likely to say they will continue to live in their current home during retirement (40% versus 49% nationally). 

Almost half . . . will consider buying a property south of the border. . . . Another 17% say they were already considering real estate opportunities in the United States

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Hong Kong luxury real estate prices 14% above 1997 peak

Real estate news got quiet leading up to the u.s. election, but returns apace.

Hong Kong luxury real estate prices rise above 1997 peak

Earlier this month, the city's chief executive Donald Tsang introduced measures intended to slow the property market, including stopping automatic residency for wealthy property buyers, many of whom come from mainland China.

The same thing continues to drive everything. Low rates, Chinese investors.

In Australia, Signs of Overheating

In Australia, Signs of Overheating

Another test will come at the landmark Sydney Opera House on Monday, when real-estate agency Ray White Ltd. holds an auction of 11 luxury dwellings, 10 in New South Wales, one in Queensland. The firm hopes the iconic venue will help persuade the invited bidders, mainly Asian, to snap up the properties, some for as much as 10 million Australian dollars (US$9.9 million).

Average Australians are increasingly being priced out. According to an international housing-affordability survey, from the Wendell Cox Consultancy, the country has the highest ratio of home prices to gross median household income in the world. 

Someone has to step in and buy the next house when the foreign investors slow buying in. Who's it gonna be?

World's Biggest Census Going on in China

This is a necessary precursor to taxing real estate. Right now it isn't feasible to tax owners except on small trial basis, because the government doesn't know who or where everyone is. Expect taxes to follow on the heels of this as further means of suppressing speculative real estate ownership.

World's Biggest Census Underway in China

For the first time since the People's Republic of China was founded in 1949, China will count people based on where they actually live, rather than where they are registered under the household registration, or hukou, system.