According to a recent Reuters survey of big Chinese real estate developers, it appears the prospects of further softening of the already bloated Chinese property market is a secondary concern. Based on survey results from some of the biggest real property players in China, the primary focus of these companies is market share. Put simply, they would rather protect market share than firm up prices as prices continue to slide due to oversupply. It seems the Chinese property market is between a rock and a hard place. More specifically, the biggest market players seem to be caught up in a game of chicken-they are looking for competitors to blink first. Apparently, few players are willing to put the brakes on construction plans even when it is clear that the last thing the already glutted Chinese real estate market needs now are even more housing units. It appears that is precisely what’s in the cards for 2015 as nine of the 12 publicly listed real estate companies in China plan to release even more units into the already cooling market.
This creates a very dangerous situation for the housing market in China and, by extension, global financial markets. Instead of waiting for the local market to digest the units already on the market, developers are putting in play a deflationary situation where consumers only need to sit on their housing cash to wait for prices to continue to crash. This leads to even more housing flooding the market and even more discounts. This vicious downward spiral can lead to loan defaults by developers which can send shockwaves throughout the global financial markets. It appears 2015 won’t be the year developers cut back-unless the government steps in with even more punitive brakes. The Chinese government has already been discouraging overbuilding but all these moves appear to produce little effect. Keep your eyes peeled on China. The spark that can lead to a global equities correction might very well come out of Shanghai.