The China Market May Crash This Year
May 2010
US Property Valuation has been advising its clients with property holdings and real estate interests
in China to be ready for a steep decline in the property market sometime between now and the next 12 months.
China's economy is showing signs it is slowing - which we can see from the reduction in purchases of
raw materials such as copper. When you toss into the mix the amount of vacant office and commercial space throughout
the major cities in China and the level of speculation that has been the hallmark of the Chinese property market - a
steep decline in values should be anticipated.
It is estimated that as much as 60% of China's economic growth in recent years has been fueled
by construction. China's centralized government has allowed construction companies and developers to borrow money on
very favorable terms. This helped keep China's growing population fully employed and content (with new TV's, DVD players,
and for some families their first car). But rows of empty office towers and apartments purchased as a speculative investment
but never occupied are a good sign the music is about to stop - and you don't want to be left without a chair when that happens.
US Property Valuation was one of the first to alert clients to the pending value declines that awaited
the US back in late 2005/early 2006. Property price increases and lax lending criteria were driving the US market higher
and we were advising clients back then that property price increases were not sustainable. Some clients listened,
but sadly most did not.
USPV is not alone in calling the turn in the Chinese property market. Famous investors such as
Marc Faber (a Swiss economist living in Thailand, but keeping a small office in Hong Kong); Jim Chanos, a hedge fund manager;
and Kenneth Rogoff of Harvard University.
One other factor to consider is the World Expo (formerly known as the World's Fair) Curse. Shanghai
is the host of the 2010 World Expo, but unfortunately the host county many times experiences a steep economic decline within
a few years.
