Monday, December 19, 2011

China's Real Estate Bubble May Have Just Popped


The biggest unanswered question is whether existing investors -- the people holding all those sold but empty "ghost" condos and villas -- will join in the sell-off, which could turn the market's retreat into a rout.

For years analysts have warned of a looming real estate bubble in China, but the predicted downturn, the bursting of that bubble, never occurred -- that is, until now. In a telling scene two months ago, Shanghai property developers started slashing prices on their latest luxury condos by up to one-third. Crowds of owners who had recently bought apartments at full price converged on sales offices throughout the city, demanding refunds. Some angry investors went on a rampage, breaking windows and smashing showrooms.


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Shanghai homeowners are hardly the only ones getting nervous. Sudden, steep price reductions are upending real estate markets across China. According to the property agency Homelink, new home prices in Beijing dropped 35 percent in November alone. And the free fall may continue for some time. Centaline, another leading property agency, estimates that developers have built up 22 months' worth of unsold inventory in Beijing and 21 months' worth in Shanghai. Everyone from local landowners to Chinese speculators and international investors are now worrying that these discounts indicate that "the biggest bubble of the century," as it was called earlier this year, has just popped, with serious consequences not only for one of the world's most promising economies -- but internationally as well.

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Original content Bob DeMarco, All American Investor