Part one of the Gray Rhino was an exceptional overview of the Chinese property market! I cannot wait to read about the turmoil it’s causing in banking in Gray Rhino part two! Looking forward to next Friday!
Fantastic article! Can't wait for Part II, and pretty rude of you to leave us on a cliffhanger like this :)))
Seriously, there has to be more to the story than developers. $1T in total developer debt sounds like a big number, but is only ~3% of non-fincl debt in 2017, and probably less than 2% now. It is also only 2% of total real estate value, and less than one year worth of residential investment.
That is not that surprising, developers are a velocity player, their debt supports housing inventory only, not the entire stock. I don't think many real estate busts in history were caused by developer debt. Problems with mortgage servicing that affect the entire real estate stock are much more dangerous.
Of course, a problem that may not seem huge on relative basis (even though very large in absolute numbers) can cause contagion and lead to a huge calamity. In the US the original problem was poor underwriting of "subprime mortgages", which were a relatively modest fraction of the total real estate sector. But in the ensuing recession many "prime" borrowers lost jobs and became unable to service, house prices collapsed and even well-to-do borrowers walked away from mortgages (the "jingle-mail" movement)...
I would imagine that developer debt, as large as it is in absolute terms, is just the first shoe to drop. The real calamity will happen when the inability and/or unwillingness to service mortgages kicks-in. Will it?
Great article, looking forward to part 2. Your posts are a joy each Friday morning. Very much appreciated.
Fantastic! I really enjoy your work on the Chinese real estate bubble.
Part one of the Gray Rhino was an exceptional overview of the Chinese property market! I cannot wait to read about the turmoil it’s causing in banking in Gray Rhino part two! Looking forward to next Friday!
Fantastic writeup of the issue. Extremely clarifying.
This reads like a good drama but is still chock full of information, well done Mr. Bear.
Thank you. Really interesting stuff.
Really great article. I look forward to Part 2.
As always, great article!
Fantastic article! Can't wait for Part II, and pretty rude of you to leave us on a cliffhanger like this :)))
Seriously, there has to be more to the story than developers. $1T in total developer debt sounds like a big number, but is only ~3% of non-fincl debt in 2017, and probably less than 2% now. It is also only 2% of total real estate value, and less than one year worth of residential investment.
That is not that surprising, developers are a velocity player, their debt supports housing inventory only, not the entire stock. I don't think many real estate busts in history were caused by developer debt. Problems with mortgage servicing that affect the entire real estate stock are much more dangerous.
Of course, a problem that may not seem huge on relative basis (even though very large in absolute numbers) can cause contagion and lead to a huge calamity. In the US the original problem was poor underwriting of "subprime mortgages", which were a relatively modest fraction of the total real estate sector. But in the ensuing recession many "prime" borrowers lost jobs and became unable to service, house prices collapsed and even well-to-do borrowers walked away from mortgages (the "jingle-mail" movement)...
I would imagine that developer debt, as large as it is in absolute terms, is just the first shoe to drop. The real calamity will happen when the inability and/or unwillingness to service mortgages kicks-in. Will it?
Looking forward to Part II