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China Real Estate Revisited

July 18, 2013

About 3 years ago we had said that while the great investor Jim Chanos is usually right, he is wrong being pessimistic about the prospects of the Chinese real estate sector- particularly the high end real estate sector (See https://crediteye.wordpress.com/2010/12/14/investor-jim-chanos-almost-always-right/).  We reaffirmed this conviction about a year ago (https://crediteye.wordpress.com/2012/11/06/china-corruption-good-for-high-end-real-estate-credit/).  

It seems that our expectation has turned out right.  Despite a sharply slowing economy, China’s June new home prices rose in all but one city, led by the biggest metropolitan centers.  Prices climbed in 69 of the 70 big cities last month from a year earlier, matching the data in May. The city of Guangzhou posted the biggest increase with a 16 percent advance from a year earlier. Prices climbed 13 percent in Beijing and 12 percent in Shanghai.  The Chinese real estate market bears no similarity to the US sub-prime market.  The US real estate market continues to be driven by leveraged investors using cheap credit provided by Bernanke.  The debt involved in real estate purchase in China is far lower than the US, and hence it is less likely there will be a panic in the sector. 

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From → Credit Analysis

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