China Bubble Is Bursting To Hit Us?
China bubble risk is repeatedly quoted by many economists for the past 1-2 years. There are no lack of news updates to also quote a sharp decline in property construction units and sales especially in 2014. This is a reversal to the post sub-prime crisis recovery which China was leading in terms of global recovery. Will China property bubble going to bursting soon to revive the concept of hard landing? Well, this is all possible all due to credit crunch.
Developers in China may get greedy by building high end condos while the pent up demand is coming from the lower to middle end housing due to migrations of millions of such middle income earners to the various China cities. Property revenue accounts probably between 15% to 25% of China GDP and local governments are depending on their sales of state owned lands to the developers to get close to 40% of their revenues so as to pay their debts and fund their operations. As China bubble is building up, investors may find high end condos less affordable and unwillingly to invest more. Developers on the other will be caught in a situation of tight cash flow now. This will spur up the shallow banking in China, i.e. non bank institutions fulfiling normal banking functions and roles.
Relating to my property idol, Li Ka Shing. He is the richest man in Asia and worth over $30 billions. Why he keeps dumping his assets in China and Hong Kong since last August? His recent move in disposing Pacific Century Place in Beijing has totalling up a selling spree of $2.9 billion of Chinese property in less than a year. Something must have gone wrong somewhere to scare off my idol. My guess is China credit crunch.
What will happen if a domino effect of the collapse of China developers one after another? China bank sectors including those non “bank” financial institutions will be badly hit. If China GDP is impacted badly, what will happen to Singapore economy? I think China bubble may not be unlikely in the coming 2-3 years.
Thinking back on the virtue of TDSR introduced by Singapore Government since June 2013, it may be an effective measure to date to prevent our own local property bubble from building up too furiously. The more i think about China bubble bursting, the more i feel better about the positive impact that TDSR brings to stabilize Singapore economy.