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So, about that Chinese Real Estate Bubble ...
While anal-ytic 'debate' about whether Chinese
real estate prices have reached nose-bleed territory continues in merry-go-round
circle-jerk fashion, there is only one (very simple) question to ask:
is this the kickoff to a new
bull market in Chinese RE or a terminal throw-over (cause there ain't
anything in between) ?
TAO Daily
EJ Daily
" Every city has a rhythm, a pulse that makes it
move. In Shanghai, one of the fastest growing mega-cities in the world, it's
easy to get lost in the relentless percussion of jackhammers and pile drivers,
bulldozers and building cranes. The proliferating skyscrapers and construction
sites are part of a stunning metamorphosis that Shanghai will show off as host
of Expo 2010, the contemporary version of the World's Fair, which runs from May
through October. The rise of China's only truly global city, however, is driven
not by machines but by an urban culture that follows its own beat - embracing
the new and the foreign even as it seeks to reclaim its past glory. "
TAO Weekly
EJ Weekly
English
Caijing tells us that:
" According to Xinhua News Agency, the housing
price Jan. in Haikou, capital of Hainan province rose 31.8 percent over the same
period the previous year; the house price appreciation set a new record
by an increase of 21.9 percent .... [National Bureau of Statistics of China].
Statistic shows that in Jan., the sale price
increased by 19.5 percent than that of last month. Second-hand houses were sold
at an increasing price of 29.5 percent while the price of the newly built
commercial houses jumped higher by 33 percent year on year and a ring growth of
19.1 percent. Among them, the year-on-year up of ordinary residential
buildings is 37.8 percent and the ring growth 20 percent; luxury
residential buildings gained an increase of 29.3 percent in price and luxury
apartments rose by 31.5 year on year and 17.5 percent than last month.
"
So, is it:
door A ~ kickoff to a new bull
market ? ordoor B ~ terminal throw-over before Chanos
is proven right (yet again) ?
bueller ??
Charts courtesy of TradeStation and
Fibozachi
»
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All equity markets, of which real estate is one, are cyclical; always have been, always will be. Not being highly leveraged may help in determining how fast or severe the downturn will be.
In the end, Government stimulus packages will not help the natural cycles or evolution of natural systems. We saw that with Japan and are currently witnessing it in the U.S.
Hope China studies and learns the lesson before its too late.
Chack Pesh
www.freedomhabits.com
There is something equivalent to the Stockholm Syndrome that occurs often, but not always, when one resides for an extended period in a country not his own. Having lived in half a dozen countries over the years, I have seen it, though (I hope) the affliction never befell me.
In Japan in the late 1980's there were many expats who drank the Kool Aid and believed equity and RE would rise forever, either because they "believed in Japan" or they felt the Japanese Government could and would prevent any significant downturn. Japanese equities could never fall because of all the cross shareholdings which masked the real float, and property on an island with lots of mountains was finite (incidentally, property everywhere is finite, but unlike matter which can neither be created nor destroyed, property CAN be destroyed...in price).
The ubiquitous silhouettes of construction cranes lining Tokyo, Osaka, etc., were "proof" that the economy was booming and property could only go up. It turns out, most of those cranes represented bad debts waiting to happen. Demand was not infinite, nor was purchasing ability. Ninety-five percent tumbles in value taught Japan a lesson from which it has yet to fully emerge.
The plethora of books promising "Japan as Number 1", once best sellers, were relegated to the "steal me" table outside most bookstores.
China will go the same route. Humans ALWAYS make the same mistakes over and over and over.....and always will. China's stock market (SSE) fell from 5100 to 1850 in less than a year just 2 1/2 short years ago. Their massive stimulus spending and forced loan growth has helped it recover some of the loss, but another decline is a distinct possibility, and given the world economic outlook, a likely occurence for that export-driven economy.
Leverage isn't always the problem; sometimes it's just price levels that are the problem, like the Dutch Tulip debacle. If leverage becomes more common, China's Chanos-predicted collapse could be postponed, but not cancelled. Being human will insure that the bubble bursts. A short profile may not pay off immediately, but being long now when price levels are where they are at is not for the faint of heart.
And if one needs to feel contrarian, with China a non-believer is ALWAYS contrarian, because there are at least 1.3 billion on the other side of the trade.
Exactly chindit13.
I lived through that "Japanese management techniques will take over the world" nonsense too.
No one can predict how hard China is going to fall....or level out IMO. However, with their wages rising & new co-pack facilities increasingly being built in cheaper Vietnam, Thailand, etc It's fairly certain that the aura of the "superior China" will begin to fade and be viewed for the manufacturing driven shop it is, with 3/4 of it's citizens having no safety net, an economic system which does a terrible job of allocating resources and an incredibly corrupt leadership.
Not China bashing, China has been very good to me, but I've lived beyond the gauzy curtain that shields 95% of all westerners from the real China.
Shanghai is a gigantic ShitHole. Whatever disease comes out of their harbour will take half of us with it. Go see then ask yourself. WTF????
regards
"Chinese love real estate" ????
Kids like ice cream. Dogs like bones. Worms love rich green waste. Chickens love tomato. Russians love vodka. Mexicans love beans.
I love South Park.
Home Grown Crisis?
The particular concern is the estimated Rmb3,000bn ($450bn) of local infrastructure loans extended in 2009, representing 30 per cent of the record new bank lending last year. Many were non-recourse loans to provinces, municipalities and counties through shell companies, known as Urban Development Investment Corporations. Some went to fund projects backed by assets, such as commercial real estate, others to projects with future cash flows such as subways and toll roads. Still others are social in nature and backed only by an implicit guarantee of the City/Provincial Investment Holding Corporation. Most UDIC loans have sparse local equity and limited cash flow prospects for repayment. For the time being, local governments and CIHCs can plug interest payment gaps with healthy land sales, which totalled Rmb1,600bn in 2009, as well as central government transfers. The UDIC liability is estimated at close to RMB6,000bn or 14 per cent of the outstanding loan base. A 30 per cent default rate would in effect wipe out the paid-in capital of top banks such as China Construction Bank and Bank of China.
http://www.ft.com/cms/s/0/b8f0e3b2-1fba-11df-8975-00144feab49a,s01=1.htm...
As someone who has lived in China for over 10 years I actually know something about China unlike Chanos who used chopsticks once before and now thinks he is an expert.
This is not a bubble. People have been calling a bubble for years and years. Dont be fooled by the percentages, you can still buy a 2 bedroom flat in dowtown Shanghai in a new building for 300-400k USD. Not bad, but global standards. Unlike the U.S., people in China still have jobs and succesful busineses which bode well for property.Chinese love real estate as they all plan to prepare a apartment for not only themselves but also their Child when they get married. The stock market is now viewed as too risky there and property is a real asset in which all the money is flowing.
In China now, you have to have inside connections to even get a chance to buy an apartment, you show up to buy and they sell out in 1 day. People are paying cash or 40% down, there is very little leverage.
2010 should be similar to 2006-2008. Volume of sales slowed significantly but prices did not go down.
Of course there will be corrections, but the system is not leverged currently. Long term with the upward trend of the RMB and growth of China its a great growth story.
"China its a great growth story."
Nice piece of propaganda based on growth reports from a country run by a central planning commitee that does not allow any type of censorship, does not allow any questions and just gives positive news.
And we're concerned about getting the Fed audited?
Someone audit China pls.
They can lie, posture and fantasize all day and night. Nobody has any freakin' clue of houw much their economy produces, exports, consumes and certainly not how much growth there is or lack thereof.
EVERY CONSUMER that matters to China is either cutting back on expenditures or is already broke.
Good luck with that growth propaganda.
"you can still buy a 2 bedroom flat in dowtown Shanghai in a new building for 300-400k USD. Not bad, but global standards."
What a deal! I want to own 2, no make that 3!!!
Give me 3 condos in Shanghai. How long do I have to stand in line and where do I line up? This is so hot, hot, hot I want in!!!!
So, Chinese are done with the Shanghai casino and they all line up to buy real estate which sells out in 1 day???? Hmm... sounds familiar to ... where was that again.. where did people buy real estate and flipped it over and over again and prices kept going UP UP UP???
Bubble? What bubble?
ROFML!!!
Leverage is not the only hallmark of a bubble. Granted it usually is a big one, but not necessarily.
If China's exports fall off a cliff and factories start laying off, it doesn't matter how much you put down (other than 100%) if you can't make your mortgage payments.
China is stuck in the same mode as every economy in history - grow or wither.
Although I do believe their population and mode of government means this can go on longer than western countries.
"If China's exports fall off a cliff"
They did, now they are having a bounce.
Look out! Gravity!
And the slinky bounds happily down the stairs...
"In China now, you have to have inside connections to even get a chance..." I think that comprises the only thing of substance in this post.. BTW, many people have lived in varied places for an equally varied amount of time and have not the slightest idea of what's going on around them, probably the majority. Such blanket and incredibly naive generalizations such as these "Chinese love real estate as they all plan to prepare etc..." is of the nature of a fifth grade geography essay, or worse, some exercise in chamber of commerce boosterism. It also helps to know how to spell and use proper syntax to at least give some semblance of credibility.
Google thamestown, songjiang... This place is almost completely empty as the wealthy chinese ma and pa investors purchased these homes that they will not occupy as "potential future buyers do not like to live in used homes"... If this is the prevailing consensus among the well to do chinese then, well... I know where I stand ;-)
+2 for both your posts, Yardfarmer
Not having been to china i only know what i am told, allowed to know or have been lied to about.
What numbers coming from anyone today are trusted?
How many numbers are faked?
Trust is gone, but chinese government carries on much like the us. Both are control freaks,
if they werent we would have more honesty.
As someone who has lived in China for over 10 years I actually know something about China unlike Chanos who used chopsticks once before and now thinks he is an expert.
This is not a bubble. People have been calling a bubble for years and years. Dont be fooled by the percentages, you can still buy a 2 bedroom flat in dowtown Shanghai in a new building for 300-400k USD. Not bad, but global standards. Unlike the U.S., people in China still have jobs and succesful busineses which bode well for property.Chinese love real estate as they all plan to prepare a apartment for not only themselves but also their Child when they get married. The stock market is now viewed as too risky there and property is a real asset in which all the money is flowing.
In China now, you have to have inside connections to even get a chance to buy an apartment, you show up to buy and they sell out in 1 day. People are paying cash or 40% down, there is very little leverage.
2010 should be similar to 2006-2008. Volume of sales slowed significantly but prices did not go down.
Of course there will be corrections, but the system is not leverged currently. Long term with the upward trend of the RMB and growth of China its a great growth story.
Past performances are not necessarily indicative of future performance.
Where did China get all that money for the expansion over the last then years (or so)? And, will this continue? Me thinks not...
China, like Japan, the US, Britain and Australia are all energy importers. As energy gets scarcer energy exports will drop: energy exporters will develp their own internal production.
Good night Irene!
We'd best hope that they can keep the folks in the cities employed building empty buildings, because the only easy alternative is to build armies with them instead. Paid in dollars, of course.
Its easy to forget the questionable steps that laid the groundwork for this so called ascent to greatness. Isn't this the same China that eliminated tens of millions in the Maoist purges, engaged in a brutal occupation of Tibet, pioneered forced sterilization and abortion creative of a lop sided generation of male enclaves with preferential elimination of females? Let's not forget Tiannemen Square. The mandarins' newly minted real estate insider billionaires offered by Goldman Sachs and HSBC are the evil twins of their executive hit-men counterparts in the echelons of those equally corrupt "government sponsored enterprises". The investor class has always found the special rigors of state terrorism and controlled command economies irresistible and fertile ground for their criminal exploitations.The massive migrations of the foreclosed American middle classes are uncanny parallels of the forced removals of millions of Chinese peasants attendant upon the Chinese economic "miracle". The results will be the same as well. A growing underclass of disenfranchised and impoverished feudal masses under the cruel and cynical tutelage of economic austerity and well policed social gulag.
It's the Shanghainese ethnic group that's controlling finance in China, not the Mandarin ethnic group. The Shanghainese fled to Hong Kong with their capital during the communist revolution and they are now back in China with their capital and lobbying for capitalism. Shanghainese, like the Jews, discover banking and capitalism before neighboring ethnic groups.
Also, before the forced migration policy of Han ethnic group into occupying Tibet and Uyghuristan, the Tibetan ethnic group were already brutally engaged in ethnic cleansing and sectarian violence against the Uyghur ethnic group and vice versa. The Tibetans and the Uyghurs would still be killing each other with or without the forced-migrant Hans.
\\The results will be the same as well. A growing underclass of disenfranchised and impoverished feudal masses under the cruel and cynical tutelage of economic austerity and well policed social gulag.//
That sums up the USSA post 1913 very well.
regards
Charts could be sold as 'Jackson Pollocks on Prozac'.
Who is auditing China... ??
- Central Planning economy.
- Censorship
- Propaganda
- 10% growth
Remember the USSR...
I remember USSR...but it took decades of over-building before it collapsed.
I actually have a large stake in a chinese equity fund, and it performs to about +7% A MONTH!
I don't believe it will crash before it tripples in value. After that, maybe... but not anytime soon. They still have the room to expand and grow.
#240245
"I don't believe it will crash before it tripples in value. After that, maybe... but not anytime soon."
Do you believe in the tooth fairy?
I think von Mises would label this "malinvestment"?
Of course. The chances are that this will the most massive confirmation of the quality of Mises work. Alas!
What I clearly take here is that the savings of 1-kid generation are captured and mostly transformed into buildings. And useless industrial over-capacities.
Let us hope and pray that theses industrial capacities are over-capacities and that Chanos is right. There will be a crisis. But a rather mild one with no geopolitical collateral damages.
On the tragic side of history one can remember that, starting 1938, a lot of over-capacities stopped being ones.
China: No One Home
Chenggong is a new town near Kunming, one of the main cities in the south-west of China. Construction started in 2003 and the results are now apparent in 13 immaculate local government buildings, each clad in marble tiles. A high school boasts an impressive indoor swimming pool and several of the region’s main universities have built large campuses. Pristine high-rise apartment blocks stand in rows, their new windows glinting in the subtropical sun.
The one drawback: at the moment, Chenggong is almost completely empty. Its wide streets are all but bereft of traffic, a bank branch has no customers and leaves collect in the foyers of the municipal offices.
http://www.ft.com/cms/s/0/47cfb09c-1f0f-11df-9584-00144feab49a.html?ncli...
China: Excess capacity in every industry and across all geographies.
http://en.wikipedia.org/wiki/New_South_China_Mall
World's largest shopping mall, located in Dongguan, China. It opened in 2005 and is still 99% empty.
You mean all that wasnt built for us?
or
its for the aliens
build it and they will come
Who owns the real estate in China? Are they going to regulate loan growth? Cool down over-heating economy? Tighten fiscal policy?
Door B Most Definitely
Huaxi [a town of 30,000 people] is also emblematic of the country’s construction and real estate boom. Communist Party officials there are building one of the world’s 30 tallest buildings, a 2.5 billion yuan, 328-meter (1,076-foot) tower. The revolving restaurant atop the so-called New Village in the Sky offers sweeping views of paddy fields, fish ponds and orchards, Bloomberg Markets reports in its April issue.
Huaxi has an even more ambitious project coming up: a 6 billion yuan, 538-meter skyscraper that would today rank as the world’s second tallest. The only loftier building is the new Burj Khalifa in Dubai.
http://www.bloomberg.com/apps/news?pid=20601087&sid=azXVqyY6O8cQ
"To get rich is glorious" has been the Chinese Communist Party's rallying call for the last thirty years. This long-running mass political campaign--like past ones under the Party--will end in ruin for the people of China.
For me the question is, whether/and for how long the Chinese government can prop up the bubble or at least prevent rapid price devaluation of the real estate market.
China Co. might be able to prop up internal real estate prices but ultimately they will not be able to hold the line on commodities in which many in China have also invested. As Europe continues to tank, can China maintain its status quo? I doubt it. It is going to be interesting.
I can't see a continuation of the bull market.
I hope Leo approves of my short reply!
Were i a chinaman and saw the cars on the new roads being built i would want a piece of that. Amarica had its romance with the car , now its Chinas turn.
I cant help but think that so many Chinese people will go for the car and that will be amplyfied many fold by add on purchases.
New roads, gas stations to be built, then a store, arestaurant etc. It will grow despite currency problems especially as more Chinese buy silver and gold as directed by their government with much encouragement.
Further Chinese are industious and will find Solar panels a hot item as it will give them power , which is a freedom of sorts.
Also while we in the USA put ALL our money into a blackhole, China bought eneogh hard goods to start a war.
Should the price of gold and siver rise (yes it will) Chinese citizens owning more of the metal will give them more purchasing power.
I see a plan here! Feel free to correct me.
"Our money" you mean funny money? We don't have any money but keep pretending we are the center of the world, it is a charade. Any wealth in this nation has long been usurped by the bankers. As Ron Paul said, the crass in american politics is a reflection of the state of the population. "Intellectuals" like Krugman continue to tell us deficits don't matter, it is really ironical because Cheney also said that when he was VP. The crass has shifted from politics to intellectual class, no wonder the mas media has nothing but lies to broadcast.
the most interesting part of a hockey stick curve is its handle.
short run: door B. long run: door A. The X factor is domestic inflation (i.e. CPI)
National Geographic? Seriously? What's Mad Magazine have to say about Shanghai? What about Playboy?
Marla, help. ZH is jumping the shark and on the verge of becoming irrelevant.
Why don't you add your critique, instead. Junk!
---
I think this circle jerk is about to go all roulette on us:
http://sudhishkamath.files.wordpress.com/2009/07/13-versus-luck.jpg