Remember that calm, reassuring phrase “don’t worry”? Okay, time’s up. You can forget it now:
Falling land prices may prompt Chinese property developers to write down the value of their assets, forcing a sober reassessment for those with vast land holdings, according to a survey released Monday by Credit Suisse.
Most at risk are those mainland Chinese and Hong Kong developers who added aggressively to their land banks in 2009 and 2010, the prices of which could come under pressure amid Beijing’s ongoing credit tightening, the investment bank said.
[. . .]
Prices for land sold at auction were down 20% so far this year, the report cited one industry expert as saying. Other data indicated price declines of up to 50% for the year to date, although the figures were affected by slumping transaction volumes in cities such as Beijing, possibly overstating the true rate of declines, the report said.
Meanwhile, the tighter credit conditions are having a “double impact” upon developers, Credit Suisse said.
On one hand, delays in mortgage approvals mean developers are having to wait longer to get paid than they did in earlier times. Today’s leaner environment has also resulted in a rise in buyers backing out of purchasing commitments on new projects because they can’t secure financing.
Remember that old joke about it being time to get out of the market when even the cab drivers have stock tips? It’s been time to get out of the Chinese real estate market since every small-time operator started buying up “choice” plots of land. It’s a classic sign of a bubble (when uninformed buyers are rushing in to get in on the “sure thing”), and those who can read the signs before they become ubiquitous are those who survive the collapse of the bubble in the best shape.
