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China's Households "Massively" Exposed To Housing Bubble "That Has To Burst"

Tyler Durden's picture





 

The topic of China's real estate bubble, its ghost cities, and its emerging middle class - who now have enough money to invest and have piled into houses not stocks - and have been dubbed "fang nu" or housing slaves (a reference to the lifetime of work needed to pay off their debts); is not a new one here but, as Bloomberg reports, the latest report from economist Gan Li shows China’s households are massively exposed to an oversupplied property market.

 

The Chinese have piled their savings into real estate...

 

not stocks (like Americans)...

 

 

But the inevitable bursting of the bubble is a problem the PBOC can't run from forever...

Via Bloomberg's Tom Orlik,

China’s households are massively exposed to an oversupplied property market according to a new survey by economist Gan Li, professor at Southwestern University of Finance and Economics in Chengdu, Sichuan and at Texas A&M University in College Station, Texas.

 

A 2013 survey of 28,000 households and 100,000 individuals provides striking insights on the level and distribution of household income and wealth, with far reaching implications for the economy. About 65 percent of China’s household wealth is invested in real estate, said Gan. Ninety percent of households already own homes, and 42 percent of demand in the first half of 2012 came from buyers who already owned at least one property.

 

“The Chinese housing market is clearly oversupplied,” said Gan. “Existing housing stock is sufficient for every household to own one home, and we are supplying about 15 million new units a year. The housing bubble has to burst. No one knows when.” When it does, the hit to household wealth will have a long term negative impact on consumption, he said.

China’s household income is significantly higher than the official data suggest. Average urban disposable income was 30,600 yuan in 2012, according to the survey. That’s 24 percent higher than in the National Bureau of Statistics’ data. These results suggest official statistics may overstate China’s structural imbalances, which shows household income as an extremely low share of GDP.

Many wealthy households understate their income in the official data. China’s richest 10 percent of urban households enjoy an average disposable income of 128,000 yuan per capita a year, according to Gan’s survey. That’s twice as high as the same measure in the NBS report. The poorest 20 percent get by on about 3,000 yuan, pointing to significantly greater wealth inequality than in the U.S. or other OECD countries.

The wealth disparity helps explain China’s imbalance between high savings and investment and low consumption. Rich households have a significantly higher savings rate than poor households. The wealthiest 5 percent save 72 percent of their income, compared with the national average of 36 percent and 40 percent of households with no savings at all in 2012.

The solution to boosting consumption is income redistribution,” said Gan. “Compared to the U.S. and other OECD countries, China has done very little in this area.” The survey also provides insights into China’s widespread informal lending. A third of households are involved in peer-to-peer lending, according to Gan.

Zero-interest loans between friends make up the majority. Interest, when charged, is typically high, averaging a 34 percent annual rate. That underscores the usurious cost of credit for businesses and households excluded from the formal banking sector.

 

And yet the bailout of one trust product has the world declaring that China is fixed again!??

 


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Tue, 01/28/2014 - 15:56 | Link to Comment negative rates
negative rates's picture

You can now call a knocked over building, a bubble economy.

Tue, 01/28/2014 - 16:04 | Link to Comment TruthInSunshine
TruthInSunshine's picture

When I was in Shanghai the natives called me "Guizi the Big Short."

Yeah, they know what time it be. Their own PTB fleeced 4 trillion USD minimum from them (thus far) and that money went bye-bye into Caribbean banks and western assets.

'Murika, the EU, BRICs, Asian Tigers, Japan - we all be illin' thanks to government corruption on a pandemic scale.

Tue, 01/28/2014 - 16:13 | Link to Comment Levadiakos
Levadiakos's picture

They spoke to you in "jive"?

Tue, 01/28/2014 - 16:36 | Link to Comment idea_hamster
idea_hamster's picture

“The solution to boosting consumption is income redistribution,” said Gan.

 

It sounds like all they need is a Marxist revolution and everything will work out.  Wait...wut?

Tue, 01/28/2014 - 16:55 | Link to Comment Apostate2
Apostate2's picture

There is another aspect to the money stashed in Caribbean banks. It returns (and much does) as 'foreign investment' that comes with a favourable tax advantage compared to money held at home.

Tue, 01/28/2014 - 15:58 | Link to Comment syntaxterror
syntaxterror's picture

The housing bubble there has been predicted to pop for each of the last ten years. Face it, their central economic planners run circles around the dipshits in 'merica.

Tue, 01/28/2014 - 16:11 | Link to Comment Levadiakos
Levadiakos's picture

All those ginormous ghost towns are sheer genius!

Tue, 01/28/2014 - 19:42 | Link to Comment syntaxterror
syntaxterror's picture

At least they have something to show for it. What the fuck does 'merica have to show for the trillions jetisoned down the rabbit hole? Oh, Dimon has a new yacht.

They've also got the largest bullet train system in the world. What the fuck does California and 'merica have to show after billions in circle jerks and shovel ready blah blah blah?

Your central planners are nothing but bankster stooges.

Tue, 01/28/2014 - 16:56 | Link to Comment vxpatel
vxpatel's picture

who needs air to breath, or water to drink...as for the quality of their food, i think it's lower than ours.

Tue, 01/28/2014 - 17:01 | Link to Comment BandGap
BandGap's picture

I need an answer. I wil post this on other threads, bitches.

When the shit hits the fan it is not obviously not coming at the direction of all the fuckers stealing the money. So, who leads the fucking charge for the people getting corn holed? The people who couldn't make it to the Caymans with the bag of cash, or the people wo knew what was going on and finally got fed up with having their asses robbed?

This is important from a management perspective. I DO NOT want fuckers that got caught short having anything to do with the remediation process...

Tue, 01/28/2014 - 15:58 | Link to Comment i_call_you_my_base
i_call_you_my_base's picture

Smells like 2005. Good luck, China.

Tue, 01/28/2014 - 16:13 | Link to Comment oddjob
oddjob's picture

So Gold will be going up 3 fold from here, nice.

Tue, 01/28/2014 - 16:10 | Link to Comment Dr. Engali
Dr. Engali's picture

I'm curious to see what the details of  8% under 'other' are . How much of that is gold?

Tue, 01/28/2014 - 16:09 | Link to Comment Levadiakos
Levadiakos's picture

Blackstone has already established local buy to rent programs

Tue, 01/28/2014 - 16:10 | Link to Comment NOZZLE
NOZZLE's picture

none of this makes any sense on the one hand you have a nation that produces consumer junk for the rest of the world using labor that is paid next to nothing otherwise it could not compete with American factory labor. on the other hand you have a large upper middle class that got wealthy from owning and in factorieswhere the sub standard consumer junk is produced yet the reason it was produced was because an American company had it produced for the benefit of its margin. And then on the third hand you have all these Chinese you seem to have all this money from doing what?  so where is all this wealth coming from considering this is a communist country up until about 20 years ago.

Tue, 01/28/2014 - 16:25 | Link to Comment NoDebt
NoDebt's picture

"this is a communist country up until about 20 years ago."

Um, still is, last time I checked.

"And then on the third hand.."

Ok, Ok, I had to give you an up-arrow for that one.

Tue, 01/28/2014 - 16:13 | Link to Comment laomei
laomei's picture

The problem with this "analysis" is that it assumes all urban markets are the same while only bothering to look at the 1st tier city housing prices.  Also ignoring purposes for home ownership as well as such fun things as the housing funds and how low-income jobs typically cover room&board.  Most migrant workers are included in that "home owner" percentage, they just don't own where they are working.  Some stay and buy, others don't.  Median houshold income in, say, Beijing, for example, is already above 100,000 RMB a year.  Rents continue to rise, as do prices, as does demand.  There are some stupid valuations on new development which will inevitably never be realized, but... there is a shitload of serious wealth looking for an outlet as well.

 

Once you get out of the major cities, housing's dirt cheap.

Tue, 01/28/2014 - 16:14 | Link to Comment Levadiakos
Levadiakos's picture

72 and sunny here, oh and no state taxes.

Tue, 01/28/2014 - 16:29 | Link to Comment gwar5
gwar5's picture

I love it there.

Tue, 01/28/2014 - 16:35 | Link to Comment Spungo
Spungo's picture

Luckily housing prices never go down

Tue, 01/28/2014 - 16:40 | Link to Comment FieldingMellish
FieldingMellish's picture

The American Dream, Chinese-style (in a black bean sauce).

Tue, 01/28/2014 - 17:03 | Link to Comment shutdown
shutdown's picture

We need to turn communist. That way we can keep the money we earn, like all those Chinese families get to do. 

Tue, 01/28/2014 - 17:09 | Link to Comment NOZZLE
NOZZLE's picture

"Lesley Stahl: Here's a number I saw. A typical apartment in Shanghai costs about 45 times the average resident's annual salary."  

 

What is the explanation for this, either the salary numbers are off by a factor of 10 or what is the other possibility?  Proceeds of drug sales, organ sales, sex slavery on a scale of 1,000,000,000?  China has more wealth than Germany?  Norway? Saudi Arabia?  and it did so in 20 years?

Wed, 01/29/2014 - 00:46 | Link to Comment laomei
laomei's picture

"average resident's annual salary" 

There's the key to understanding it.  You're also basically getting this number based on the "I'm a foreigner in Shanghai and I could never contemplate living outside the city core" factor.  It's basically tantamount to comparing "New York State Average Salary" to "Housing prices in Manhattan".  By the same standards it's some crazy bubble.  Yet, Those prices keep going higher and higher.  Shanghai, Beijing, etc... it's the same thing.  You also have to factor in "household income" which in Shanghai is about 99k RMB now.  The average unit size in Shanghai is ~60 sqm, about 650 sqft and the average price per sqm is 27,725 RMB.  Which means that for an average apartment in Shanghai, you're looking at 1,663,500 RMB.  Of which, 332,700 is the minimum down payment, leaving a loan of 1,330,800.  600,000 of which can come from a housing fund loan with an interest rate around 4.5%.  The remainder (730,800) would be a bank loan with interest around 6% or so.  

 

Here's the thing though, there's other money as well.  The housing fund payments in shanghai (7%) are matched by employers and it's tax free.  With a dual-income household of average income of average income, that's another 1100 RMB or so that goes to the mortgage. It still seems a bit harsh, however you have to remember the realities of the economics involved here.  That average income accounts for migrant workers, of which, the vast majority will never buy a home in Shanghai.  The RESIDENT income is much higher on average, and the vast majority of those residents basically already own a home, have equity and if anything are looking to upgrade.  Migrant workers work for cheap, bring the average down, but they are just there temporarily.  If I go flip burgers in NYC, I'm not going to pretend that I will ever be able to buy a manhattan condo with that income.... it's just not gonna happen.  Furthermore, if I claimed that this was somehow unfair, being unable to buy a home in a major market while working a shit job, I can't think of anyone who wouldn't call me insane.  That *average* housing price accounts for the core and the outskirts, and the core prices are far higher.  Add a 40~60 minute commute on the subway and you're looking at drastically cheaper housing.  It's pretty much the same in every major city, and China is not by any means an exception.  The prices are high, yes, but the only reason they are not much much higher is because the government is holding them back.

Tue, 01/28/2014 - 17:10 | Link to Comment sunny
sunny's picture

Chinese markets up quite nicely last night.  US markets doing well today.  What IS the problem?  I hear much crying and weeping and gnashing of teeth by some, yet markets are just hanging in there near their all time highs.  Tell me how bad it is after they crash...whenever that is...not before.

sunny

Tue, 01/28/2014 - 19:36 | Link to Comment thestarl
thestarl's picture

Could'nt be all that funny money sloshing around by any chance huh or maybe ZIRP?

Tue, 01/28/2014 - 20:01 | Link to Comment zyby
zyby's picture

re: "Ninety percent of households already own homes

Doesn't pass the smell test. This is clearly bogus. How the fuck is it that 90 percent of Chinese families own homes - even given this is in the city. How was this survey conducted - by calling all iPhone owners? Bogus.

Tue, 01/28/2014 - 20:46 | Link to Comment ptolemy_newit
ptolemy_newit's picture

ten years living in many tier 1 and 2 cities, there is NO street people.  That would mean they all sleep somewhere like in a home. country folk do not have materialistic attitude to beat the Jones’s so they don’t paint too often.  But the family is there.

Most everyone is 35 years old is double income 1 child and the bank interest on deposits is too small, where should an average person keep their money? In a bank, you think that is smart?

 

House process are up 400 percent in 10 years, so what if they fall 40%

Tue, 01/28/2014 - 21:59 | Link to Comment freshlyminted
freshlyminted's picture

http://www.smh.com.au/business/australian-banks-rush-to-lend-287-billion-to-chinese-borrowers-20140128-31kz8.html

Hello fellow ZHers my 1st post after spending many months reading and following this site. I can only hope to be as both informative and as amusing as a great many of you are on here. Hope all is well. Just thought I would post this link as I feel the Aussie banks are treading a very fine line. The world is totally nuts so I am very much looking forward to a global change in financial dynamics, fingers crossed!

Cheers for now

 

 

 

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