Chinese Real Estate in Broad Decline

We have already seen anecdotal evidence of sharp price cuts by property developers eager to move inventory of unsold homes (China's Housing Crash is Gathering Momentum) or sharp drops in the most speculative luxury vacation home market (Property Prices in "China's Hawaii" Down Almost 30%). The market reversal is now spreading with Dec marking the third month in a row of negative average growth of home prices in all of China. Moreover, according to Reuters, prices dropped in 52 out of 70 cities. The situation is far from desperate but can get worse very fast with the government continuing efforts to reduce property speculation, developers losing access to funding and new home sales slowing to a crawl. The real trouble will probably start when prices in all cities start dropping at the same time.

China's Housing Crash is Gathering Momentum

While it is nothing new, watching this in real time is really quite instructive. Vanke is the largest mainland property developer and according to Caixin Online:

In the fourth quarter, Vanke's sales in 14 major cities dropped 45 percent by area from a year earlier, while home transactions in smaller cities also slowed down significantly 

The drop in sales of 45% is staggering! At the same time properties are exiting the construction pipeline, increasing inventories and necessitating an aggressive sales approach (read "fire sale"). Developers are already starting to offer deep discounts on new condos. Realtors are also getting desperate - one WhatIf source in Shanghai said agents would position themselves at crossroads and after waiting for the light to turn red, try to pass out leaflets to the drivers of expensive cars.

Property Prices in "China's Hawaii" Down Almost 30%

What is the first thing you do when you have an extra million or ten? If you are like most people you go and buy a luxury vacation home. But that would also be the first to go when you realise your business won't be going to the moon quite as fast as originally expected. The second phase of that is currently going on in China's "tropical paradise" of Hainan where prices are down 28% year-on-year (see Bloomberg article).
Vacation property is the first to go down when the market starts turning. Consider the fate of Miami in the US, Greece and Spain in Europe. Usually the rest tends to follow, especially in a market that has gone much too high by any fundamental measure. Official statistics out a few days ago showed that property prices in most Chinese cities are now also dropping. Beware the super-bubble.