Some random Japanese analysts on China real estate market hard landing9 May, 2012, 16:30. Posted by Zarathustra
Now we hear a China’s slowdown story from a Japanese company called Toto, which made toilet equipment, with the profit from China dropping. But that is not the most interesting thing.
Deutsche Bank Japan research analysts Yoji Otani and Akiko Komine who cover this company include 3 pages of discussion and charts within a 16-page report to make the point that China today looks like Japan in 1990. They are concerned that one-child policy and population ageing (and indeed, the projection that population to peak in 2020x) will have negative impact on residential housing demand, which are certainly somewhat similar to what we see in Japan today. That I have touched on previously.
The most interesting, however, is that they suggest that Japan started to implement increasingly tough real estate market regulation in the late 1980s with no effect, until they became effective. As there is a big lag between the implementation of policy and the policy taking effect, the impact became somewhat catastrophic for Japan (as we know it) when they finally became effect. Emphasis is mine.
At its results briefings, TOTO maintained that investment in China carries little risk. We believe that, on the contrary, China risk is increasing by the day. This is because of the government’s repeated introduction of real estate market regulations. This is similar to what happened in Japan.
Various regulations were introduced during the late 1980s to rein in the overheating real estate market. Because of the upward momentum in real estate prices, initially there is no effect regardless of how many regulations are introduced. However, this is simply because of the time lag until the effects materialize.
Nevertheless, since regulators desire swift results, they rapidly implement a succession of regulations. When the effects of these regulations build up, the real estate market collapses. In other words, the normal scenario for the real estate market is for hard landings rather than soft landings. History shows that the market cannot be artificially controlled.
Source: Deutsche Bank
So astonishingly, from Japanese point of view, it seems almost as if real estate market corrections have to be hard landing. Soft landing, if it exists, would be an outlier.