Riots in Shanghai as property firms slash house prices
Posted on 30 October 2011 with no comments from readers
Around 400 recent homebuyers in Shanghai rioted yesterday and a number were injured after smashing up a property showroom in protest over falling prices, believed to be down by up to 25 per cent. The great Chinese property bubble that has taken prices in cities like Shanghai to an unsustainable 20 times earnings has burst.
Separate reports said other Shanghai homeowners gathered to speak with Longfor Properties, after it lowered asking prices to 14,000 yuan per square metre from 18,000 yuan per square metre at a residential development in the Jiading district. Two hundred angry buyers also assembled at the offices of Greenland Group earlier in the week.
Tiananmen precedent
Chinese leaders will be alarmed. Few remember that the Tiananmen Square massacre of 1989 was not actually a democracy protest but a riot over falling property prices that got out of hand.
Developers slashing property prices 22-30 per cent is obviously an immediate loss for recent buyers who are demanding their money back. But they are only responding to market forces which has seen demand for apartments in Chinese cities suddenly dry up.
Is this a Chinese version of the sudden-stop that hit Dubai property in the wake of the global financial crisis three years ago? Yes, all property booms eventually go bust as night follows day, it is only the timing that can be argued over.
The US hedge fund manager who made billions betting against US sub-prime loans to housing a few years ago, Jim Chanos has been shorting China for the past 18 months or so. He has recently been arguing that his estimates of the size of the Chinese real estate bubble have been far too conservative.
Real estate crash
What does it mean if the wheels fall off this engine of global growth? Like Dubai the Chinese economy has become far too dependent on real estate and construction for its fantastic growth rates.
Well, if China sneezes the whole global economy will get a chill. Commodities that have ridden high on demand from the Middle Kingdom will take a dive, and that will bring global stock markets crashing down, though ironically lower industrial commodity prices would ease cost pressure on the West.
However, if we have an imminent eurozone recession courtesy of the sovereign debt crisis and a Chinese economic crash then 2012 increasingly looks a Mayan calendar event.
