China: 120,000,000 Unfinished Homes

Paid in full and mortgaged but they will never get built

Summary:

• Buyers must pay the full purchase price when buying off the plan homes in China so even if the home doesn’t get built, the buyer MUST service the debt

• Developers are incentivized to launch more projects and pre-sell them without having completed earlier projects

• Because there has been an endless supply of new homes coming onto the market, there is next to no secondary market activity

• 78% of all household wealth is trapped in the housing market

• It's estimated that there are 94 million empty homes in China and an astounding 120 million paid-in-full homes that are unfinished or not yet started. That's an oversupply / overproduction of 214 million homes.

• Some home buyers are actually living in uncompleted homes

• The property bubble has burst and not only has confidence been destroyed, but because so many people are paying off mortgages on homes that will not get built, they could not buy another property even if they wanted to.

Read the Full Article on Charles Hugh Smith's Substack

And all these people who are paying off mortgages on non-existent homes no longer feel wealthy, and they are pulling back on spending.

LVMH's empty Chinese megastore signals deeper luxury crash

When LVMH CEO Bernard Arnault toured China in June last year, he visited a five-story site in Beijing where the company’s top brand Louis Vuitton planned to open its flagship store in the first half of 2024.

More than a year later, the building remains fenced off. The store may not open until as late as next year, according to people familiar with the matter.

Signs that the slump has further to run are multiplying. Sales people at Hermes, whose Birkin bags could easily sell for tens of thousands of dollars, reduced how much shoppers need to spend to be able to buy the iconic products in a rare move, according to people familiar with the matter. Companies including Kering SA and Burberry Group Plc are resorting to discounts of as much as 50% to clear stock.

Sales executives, used to being pestered by clients about the latest product range, are struggling to get VIPs to return calls. To entice its biggest spenders in China, LVMH paid to fly a group of them to Paris for the summer Olympics. After years of heady growth, China’s luxury market is expected to shrink as much as 15% this year, according to consultancy Digital Luxury Group.

Companies such as LVMH and Kering poured billions of dollars into China to meet rising demand as the country boomed. Between 2011 and 2021, China’s luxury goods market rose more than four times to RMB471 billion ($87 billion), according to consultancy firm Bain & Co.

Steven An recalls how when he turned up at events in Shanghai as a senior executive for a PR firm last decade, everyone wore luxury.

“In those years, you would find that almost everyone around you was wearing clothes that were at least ‘LV-level,’” said An, who is founder of fashion consultancy Chi Design. “Hermes, Chanel and LV were the most common brands.”

Now demand is falling as early projections that a post-Covid boom in spending would be sustained are proved wrong.

Kering warned that its annual profit will fall to the lowest level since 2016 after comparable sales at Gucci, the French fashion group’s biggest label, tumbled 25% in the third quarter due to China’s slowdown. LVMH reported a 16% slump in the region that includes China in the same quarter, wider than its 14% drop in the previous three months.

“Consumer confidence in mainland China today is back in line with the all-time low reached during Covid,” said LVMH CFO Jean-Jacques Guiony during the company’s earnings call last month.

Swiss watch exports to China tumbled 50% by value in September from a year earlier, putting pressure on companies such as Richemont, the group behind Vacheron Constantin and IWC, and Omega owner Swatch Group AG.

Cosmetic manufacturers too are suffering. L’Oreal SA reported a 6.5% drop in like-for-like sales in North Asia last quarter, with the company saying the beauty market in China continued to deteriorate. Estée Lauder Cos. pulled its guidance for the year in part due to weak demand in China, where sales fell by a double-digit percentage in the three months to September. Its shares plunged by a record.

Economic worries have taken center stage as the slump in the housing market deepened, fueling pessimism among consumers. Where once was a gilded age, social media users now refer to the present era as the “garbage time of history.”

Coco Li, 46, used to spend about HK$600,000 ($101,453) a year — or roughly 20% of her income — buying luxury items. After losing her job as an executive at a multinational company in Hong Kong, she’s curtailed her habit and put some of her Hermes handbags up for sale on mainland Chinese online platforms.

“In the past, I just bought luxury without thinking as long as I liked it,” said Li. “I don't have anything special that I want to buy now because I don’t know where my future income will be.” Source

---

The CCP will continue to stick fingers in the dam with massive wave after massive wave of stimulus but eventually the dam will give way. It’s not a question of if but when the Chinese economy implodes.

Of course they are not alone in their desperate battle to stay alive. Every country on the planet is piling on debt to try to generate growth, including the United States which is adding a trillion dollars to their debt pile every 100 days.

The Men Who Run the World are fortunately doing something to ensure 8 billion of us don’t tear each other to shreds when the financial system and global supply chains burst.