• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing
  3. / Industrials

China Might Be Blowing a Gigantic Global Housing Bubble

Chinese stimulus money could be pushing up home prices everywhere, and bringing the spoils right back to China.
By ANTONIA OPRITA Aug 25, 2016 | 08:00 AM EDT

It's the perfect example of a circular stimulus: the U.K. is facing a shortage of bricks so bad it has to import them from countries like China to build houses to try to solve its worsening housing crisis. And what is one of the main reasons for the housing crisis? Very likely, it's the Chinese government's stimulus for its own economy.

Chinese buyers flush with cash are bidding up house prices in many of the world's big cities, creating shortages of properties for local buyers and worries that they are fueling a massive real estate bubble. They are also creating a construction boom in the process, which is boosting imports of Chinese building materials, so the question is whether this is a deliberate policy or not.

The National Association of Estate Agents (NAEA) of the U.K. released a report on Thursday arguing that a shortage of bricks has contributed to poor housing supply over the past decade in Britain. In it, it said the British construction sector would require a total of 1.4 billion bricks in order to resolve the country's housing shortage, enough to build 40 Tower Bridges -- that's the iconic twin-towered bridge over the Thames you see in lots of postcards from London.

The report said two thirds of small and medium-size construction companies in the U.K. had to wait two months for an order for bricks to be filled, with a quarter of them facing a four-month wait and 16% even waiting for half a year.

Brick imports by the U.K. from non-EU countries (of which China makes a big part -- separate data were not available) jumped last year by almost 40% from 2014, as did imports of other building materials, data from the Department for Business, Energy & Industrial Strategy show.

It is of course difficult if not outright impossible to calculate exactly how much of the rise in home prices is due to Chinese stimulus money pouring into property in the U.K. and elsewhere, and then how much of that money goes back to China in the form of imports of construction materials for an expanding real estate sector.

What is becoming increasingly obvious, however, is the importance of Chinese property buyers as marginal buyers for many of these real estate markets. That is because a lot of Chinese companies are seeking to invest in overseas property the money they take on as cheap loans from a state hoping they will instead invest it in creating growth at home.

Louis Kuijs, head of Asia Economics at Oxford Economics, pointed out in recent research that there is a gap between sluggish private investment and buoyant public investment in China. He also identified a gap between surging credit expansion and slowing Chinese GDP, which is even more significant.

"To the extent that the large gap between credit expansion and growth of GDP and investment reflects re-channeling into financial assets, it partly points to distortions in China's financial system and a lack of appetite to invest, thus underlining the limits of credit-based stimulus," he wrote.

The lack of appetite to invest is the crucial bit here, because the companies must be doing something with the money if they don't put it back in the Chinese economy. If we look at the increasing importance of Chinese investors for global real estate, it does not stretch the imagination too hard to say that part of the cheap loans they get from the state are going abroad.

The U.K. is not the only destination of the Chinese buyers. U.S. homes are sought after, too. According to the latest data from the National Association of Realtors, Chinese buyers made up 26.3% of total foreign buyers of residential U.S. property between April 2015 and March 2016, when they bought houses worth $27 billion.

The Chinese were followed at great distance by Canadians, who bought residential property worth $8.9 billion in the period, Indians with $6.1 billion, the British with $5.5 billion and Mexicans with $4.8 billion. Such a big difference in amounts suggests the Chinese buyers are perhaps more than just rich individuals.

Looking at imports of building materials from China, they have increased in the U.S. too in recent years, data from the U.S. Census Bureau show. Between 2013 and 2014, imports of stone, sand, cement, etc. increased by more than 9% and jumped by 19% between 2014 and 2015.

Of course, there is no actual proof that the Chinese buyers gobbling up properties around the world -- so eagerly that Vancouver had to impose a hefty tax on foreign buyers to cool off its red-hot real estate market -- are one and the same as the Chinese companies that are awash in state stimulus cash.

And yet, going back to 2013, recall that the People's Bank of China allowed Chinese companies to lend money in renminbi to their offshore branches without any limit and without any requirement for them to first notify regulators.

That essentially meant that companies could transfer money out of China without having to worry about capital controls. Home prices started increasing strongly around the world since around that year.

Of course, this could be a coincidence, and probably is. But still, it makes one wonder.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.
TAGS: Regulation | Markets | Basic Materials | Investing | Industrials | Real Estate | Emerging Markets | Economic Data | China | Economy | Politics

More from Industrials

LyondellBasell Could Hold Temporarily Before Renewed Declines

Bruce Kamich
Jun 27, 2022 2:22 PM EDT

Let's take a look.

If These Stocks Are Any Indication, Investors Are Betting Against a Soft Landing

Bob Byrne
Jun 23, 2022 8:30 AM EDT

The sharp downward price action in a number of materials producers suggests traders believe a recession is right around the corner.

If You're Tired of Taking a Haircut on Losing Stocks, Get Mohawk

Paul Price
Jun 23, 2022 7:00 AM EDT

Now you can own a world leader industrial company at a ground-floor entry price.

Atkore Makes an Upside Breakout and Pullback

Bruce Kamich
Jun 9, 2022 12:15 PM EDT

Let's check the charts and indicators.

Bearish Bets: 3 Sluggish Stocks You Should Consider Shorting This Week

Bob Lang
May 15, 2022 10:30 AM EDT

These recently downgraded names are displaying both quantitative and technical deterioration.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 11:56 AM EDT STEPHEN GUILFOYLE

    Stocks Under $10

    Check out what's going on in the Stocks Under $10 ...
  • 12:04 AM EDT PAUL PRICE

    Two Good Signs -- Especially for Small-Cap Investors

  • 12:10 AM EDT PAUL PRICE

    More Insider Buying in American Woodmark (AMWD)

    American Woodmark , which I've discussed here fr...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2022 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login