Merrill Lynch: China bust upon us
Posted by Houses and Holes in China economyon Oct 7th, 2011 | 13 commentsZarathustra wrote earlier this week:
Deutsche Bank is expecting a 10% correction in home prices because it would be a disaster if prices are allowed to fall by, say, 30%:
"Those who understand China’s political economy should know that a 15% decline in average property prices in 35 cities within a few months must be accompanied by a range of economic and social consequences. These will include a sharp decline in real estate transactions, a visible deceleration in real estate investments, rising unemployment in the property construction and agency sectors, a further decline in construction material prices, demand destruction due to inventory destocking, and finally a worrying decline in GDP growth and the resulting concern of social stability. In other words, the government will most likely not tolerate a 30% drop, and probably not even 15% in our view. We expect real estate policies will likely be relaxed way before a 30% price decline is observed."
I hear that!
The next question is, however, can you be happy to allow some property developers to fail miserably while at the same time limit the fall in home prices to within 10% so that you can avoid “a range of economic and social consequences”, in other words, hard landing?
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