China Developing Its Own Real Estate Bubble 19 comments
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It’s nice to know that Americans aren’t the only people in the world that believe real estate prices can never stop going up. Apparently the Chinese share our affinity for bubbles.
From MarketWatch, real estate prices in China are going through the roof:
Beijing’s property prices are climbing at an unsustainable rate, with residential property in the city center leaping 6.5% in the past week alone, according to a report Friday in the state-run China Daily newspaper.
The report, which cited data from property broker Homelink, said some neighborhoods have seen demand for apartments at four times the number of units available.
“We used to talk about monthly price growth, but recently, it’s more about daily change,” the report quoted a Homelink broker as saying.
Developers such as Hong Kong-listed Soho China Ltd. are also worried about the run-up in prices.
“The bidders have gone irrational. A bubble in Beijing’s property market is definitely there,” the report quoted Soho founder and Chief Executive Pan Shiyi as saying.
The report said other large cities across China were seeing a similar phenomenon, with industry leaders now worried that the market is priming for a big drop at some point in the future.
“One thing we are concerned about is whether there is a new bubble being shaped. While people have a strong perception of excessive liquidity and further price growth, the possibility of a bubble is pretty big,” it quoted Gu Yunchang, secretary-general of the China Real Estate Association, as saying.
Recall, if you will, that the government has been pouring money into the economy in order to ward off the effects of the global recession. Ostensibly intended for infrastructure, there continue to be reports that the banks are essentially financing stock, commodity and real estate speculation. Looks like those reports might have some substance.
There may be an opportunity here to close the deficit with China. We have a huge head start in doing short sales, foreclosures and loan modifications. Somebody get to work figuring out how to cash in on this expertise!
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We are not in a zero sum game--there must be "losers" if there are to be "winners"...WE have now chosen our children and their children to be the "losers".
This is not too difficult for leaders in DC to understand--they simply chose to ignore it in order to maintain power/get reelected. (the U.S. and China have painted themselves into the same corner)
It will get very ugly once the REAL problem loans face rate resets, we are not even 1/3 through this debacle.
We ascribe to different notions regarding the outcome of globalization Dave. You're apparently on-board with those who think there will be benefits that raise all ships, while I'm on the side that believes that globalization will result in working people all over the world ending up in the same boat as John Steinbeck's "Okies," from the Grapes of Wrath. China will never have a burgeoning middle class, because financial capital will abandon the Chinese as soon as costs in that country rise beyond a certain thresh-hold.
In fact Beijing housing has smelled like a bubble to me for several years and I am guessing the reason it hasn't hit the fan relates to stimulus getting redirected back into even more RE building and speculation, as others have mentioned.
I am really surprised this has blown up yet, but when things go parabolic it is only a matter of time before something has to give. That said, the government has a greater involvment in the economy over there, so on the way down things may follow the dynamics of a free market to an even lesser than they are here (eg, foreclosure moratoria, etc, etc) .
On Jul 03 11:14 AM Adam855 wrote:
> Definitely sounds bubbly, but I'd like to see affordability measures
> prior to concluding anything. Does anyone have data that could help
> with this?
China should take a clue from the rest of the world and accept economic cycles and stop massive bubbles. However, so far why ruin a decade plus long run.
Does that sound familiar? Ours wasn't a decade but we also had a nagging thing called a balooning deficit, a trade deficit, and negative real consumer savings. It's a wonder our run lasted as long as it did (mass spending and terrible Fed low rate policies can do wonders). When China eventually hits a recession who can say what will happen. It appears the "socialist" party leaders don't want to find out anytime soon. A Tienamen Square episode replaced with starving homless people could shape up to be a lot worse. Especially when socialist party leaders drive rolls royces and have a few US$ million to each of their names. The contradictions are glaringly apparent. The sooner they move towards democracy and a ideology that fits their behavior the better off they will be.
America has to wake up and smell the coffee. They either have to compete on a global stage or turn inwards and shut themselves off, but that in itself will require a greater degree of self-sufficiency than they do now. The third way is to simply become the World's largest banana republic with two or three secessionist struggles going on simultaneously.
My view it that it would be preferable to attempt to compete, but I can respect the "Its my ball, and I am going home strategy". At least these approach is intellectually consistent and honest.
On Jul 03 04:03 PM LilBob wrote:
> "...Whilst the money is being spent investing to satisfy the needs
> of a rapidly expanding middle..."
>
> We ascribe to different notions regarding the outcome of globalization
> Dave. You're apparently on-board with those who think there will
> be benefits that raise all ships, while I'm on the side that believes
> that globalization will result in working people all over the world
> ending up in the same boat as John Steinbeck's "Okies," from the
> Grapes of Wrath. China will never have a burgeoning middle class,
> because financial capital will abandon the Chinese as soon as costs
> in that country rise beyond a certain thresh-hold.
On Jul 03 11:03 PM Moon Kil Woong wrote:
> LOL so much for communism. An economy that makes property unaffordable
> has been the central focus of economists, philosophers, and populists.
> If you didn't make money by people a party person, speculating on
> property (playing the greater fool theory), or running a company
> taking advantage of the cheap labor of your country and undervalued
> currency it will be a very cold day in hell before you could buy
> property in a metropolitan area in China. Wealth distribution there
> is worse in terms of standard of living than America and is close
> in terms of sheer monetary disparities.
>
> China should take a clue from the rest of the world and accept economic
> cycles and stop massive bubbles. However, so far why ruin a decade
> plus long run.
>
> Does that sound familiar? Ours wasn't a decade but we also had a
> nagging thing called a balooning deficit, a trade deficit, and negative
> real consumer savings. It's a wonder our run lasted as long as it
> did (mass spending and terrible Fed low rate policies can do wonders).
> When China eventually hits a recession who can say what will happen.
> It appears the "socialist" party leaders don't want to find out anytime
> soon. A Tienamen Square episode replaced with starving homless people
> could shape up to be a lot worse. Especially when socialist party
> leaders drive rolls royces and have a few US$ million to each of
> their names. The contradictions are glaringly apparent. The sooner
> they move towards democracy and a ideology that fits their behavior
> the better off they will be.
"The China Statistics Yearbook 2008 found that the average home price in Beijing was 23 times a local family's average income, compared with the international level of four to six times.
In Guangzhou, a recent online poll by leading portal Sina.com showed that 78 percent of respondents consider the city's home prices to be far beyond the affordability of ordinary families.
"I just can't understand why our provincial government has issued a string of policies earlier this year to prop up the real estate industry while so many people cannot afford to buy a home," said Yang Anjing, an employee with a consulting firm in Guangzhou."
rol.vn/weben/banin/tin.../
"It is estimated that there are vacant areas of 160 million square meters across the country. To reduce the current stock is a priority. Take Beijing for example, by the end of March, existing vacant commodity housing areas reached 14.372 million square meters, an increase of 34.5% over the same period of last year and it would at least take 13 months to digest the stock."
www.chinastakes.com/20...
"Half of the 5.8 trillion yuan (£522bn) of stimulus loans issued by Chinese banks have flowed into the country's stock and property markets, inflating new bubbles, according to senior Communist officials."
www.telegraph.co.uk/ne...
When the 4.57 trillion yuan stimulus wears off and the China bubble pops, it will have massive ramifications for the global economy.
On Jul 03 11:14 AM Adam855 wrote:
> Definitely sounds bubbly, but I'd like to see affordability measures
> prior to concluding anything. Does anyone have data that could help
> with this?
"My view it that it would be preferable to attempt to compete, but I can respect the "Its my ball, and I am going home strategy". At least this approach is intellectually consistent and honest."
I may have presented my beliefs a bit too strongly. I believe in competition also. But I've also become aggravated at how easily this country was sold on globalization. Apparently the Chinese have become sold on it also. China is in great danger from any type of speculative bubble at this point-especially if keeping up with cost-bubbles leads factory owners to hike their bids on Western retail contracts. From ports on the West coast it's a matter of just a few degrees and one ends up in Vietnam rather than Shanghai.
I realize you're a Yank, but not all buying takes place because people want to speculate. The market demand is enormous as people had no right to private ownership of housing under the Communists.
To speculate, you'd have to follow the American model: (1) have no equity; (2) borrow at least 90-95% of the cost of the housing; (3) lie on your income; (4) try to flip the house and double your money.
If you indeed have 'friends' in China, why don't you ask them how people buy houses? The answer, my luckless friend, is 'CASH'.
You really need to start a serious investigation of what speculation is...and I suggest you begin by looking the definition of 'leverage'. I'm glad you spelt the word properly, but now seek to find out its meaning and mechanism.
BTW, bubbles don't smell unless you're not talking about economics.
On Jul 03 05:22 PM fleeing omega wrote:
> Adam, I wish i could provide you with actual numbers, but from talking
> to people in China, and esp. Beijing, it does appear that affordability
> is already well above sustainability....
On Jul 04 10:09 PM LilBobby wrote:
>
> From ports on the West coast it's a matter of just a few degrees
> and one ends up in Vietnam rather than Shanghai.
On Jul 03 11:03 PM Moon Kill Wrong wrote:
> LOL so much for capitalism. An economy that makes property unaffordable
> has been the central focus of economists, philosophers, and populists.
> If you didn't make money by being an elected politician on the take, speculating on
> property (playing the greater fool theory), or running a company
> taking advantage of the enormous leverage available from banks whose losses are sustained by taxpayers, it will be a very cold day in hell before you could buy
> property in a metropolitan area in US. Wealth distribution in the US by international measurements is worsening at the most rapid rates in the world [snip]
> When China eventually hits a recession who can say what will happen.
My friend you apparently don't live here in China along with us expat business people who've been here for 5-10 years.....China's burgeoning middle class is numbered somewhere between 100-200 million depending on whom you might ask, have more cash than you could ever imagine, no credit card debt...NONE, own their new cars without loans, own 80% of their homes without mortgages...
Also, your suggestion that financial capital will bail as the unavoidable inflation pushes up costs....a silly notion....multinational FDI came here for the long haul, knowing the inflationary scenario that comes with an expanding nation, not to bail. Even as costs double, they are still relatively low. Admittedly, the cost increases will cause some outflows into India, etc, but not much as a percentage.....Cheers, Mario, sanyaexpat.com
On Jul 03 04:03 PM LilBob wrote:
> "...Whilst the money is being spent investing to satisfy the needs
> of a rapidly expanding middle..."
>
> We ascribe to different notions regarding the outcome of globalization
> Dave. You're apparently on-board with those who think there will
> be benefits that raise all ships, while I'm on the side that believes
> that globalization will result in working people all over the world
> ending up in the same boat as John Steinbeck's "Okies," from the
> Grapes of Wrath. China will never have a burgeoning middle class,
> because financial capital will abandon the Chinese as soon as costs
> in that country rise beyond a certain thresh-hold.