China real estate bubble mania in full swing!!

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Subprime JD's picture
Subprime JD
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China real estate bubble mania in full swing!!

This article from the WSJ

http://online.wsj.com/article/BT-CO-20100416-700144.html?mod=WSJ_latestheadlines

APRIL 16, 2010, 12:29 A.M. ET

What's next for China's property playground?

Note the word "playground" right after "property" in the title of the WSJ article LOL LOL LOL.

Here's some memorable quotes:

And yet other analysts say "bubble" doesn't necessarily mean "bad." Zhang Hong, president of Beijing BrilliantStone Investment Consulting Co., agrees China has a big real-estate bubble. But he says it's an extremely resilient bubble that could last.

BMT:    Hahahahahahaha! EXTREMELY RESILIENT BUBBLE THAT CAN LAST. Ive heard that one before. Being from southern california and having personally witnessed and lived through the housing mania that took place in RIVERSIDE COUNTY, CA, I know what bubble talk is.

Several factors seem to support faith in the bubble's lasting strength. Housing demand is growing rapidly, some say the yuan has not appreciated to its potential level, foreign investment in the housing market is restricted, and China's urbanization process is on the rise.

BMT:     Ummmmm, housing demand is growing due to excess liquidity and relaxed lending standards. Foreign investment will further exacerbate the problem and China is already mostly urban.

Most real-estate professionals forecast "upward pressure on housing prices for the next 20 years," saying steady demand for housing will keep elements of downward pricing pressure at bay.

BMT:     20 year bubble!!!! Wow! Lets all go buy some Chinese real estate thats priced at 20 times incomes! What a wonderful investment! Lets all become rich rich rich!

And so the game goes, with speculators of all stripes, from daring developers to cautious investors, taking turns at rolling the dice. What's next for China's property market is anyone's guess.

Beijing's housing prices have now reached historic highs -- up 40% since 2007. The average residential sale in Beijing exceeded 26,000 yuan ($3,800) per square meter in March, an increase of 59.5% year-on-year and up 16% from the previous month.

BMT: HOLY SH*T! $380 per sq ft! So for a 1000 sq ft condo its $380,000. On a fabulous chinese income of 10,000 per year that condo costs 38 times earnings.

 

CONCLUSION

Shanghai and Beijing real estate values are on average 14 to 16 times earnings, clearly in overheated bubble territory. Chanos, Pettis, and others have argued that many Chinese cities are turning Dubaish. All of the elements of a bubble are present. Speculators, liquidity, and absurd prices. The bubble will burst and will be painful for many who get caught in the explosion. I know there are many who believe that China will weather its downturn just fine as it is a big exporter, has huge savings, and a big pile of cash. The China bulls also argue that the 1.3 billion in population, the rising Yuan, and a growing middle class will be able to offset any damage caused by the current "froth" in chinese real estate.

However, I counter that China is doing too much too fast. Too much high priced RE, too much commodity investment, too much industrial capacity. There will be a correction as there are always corrections. Looking too far longterm will cause people to miss the short term waves.

 

Yours truly,

 

BMT

 

 

Carl Veritas's picture
Carl Veritas
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Re: China real estate bubble mania in full swing!!

BMT,

Boom caused by Excess liquidity and   Relaxed lending standards.  Bust.   Bail outs.   Blame the "Free"  Market and evil capitalists. It's the same crap in another location.

A massive bail out requires their government raise an equally massive amount of cash pronto.      Now what do they own a lot of  that is readily marketable wordwide, BMT?

No doubt the smart money has  performed the "Ladies and gentlemen, Elvis has left the building"  act.

 

 

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Carl Veritas
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Re: China real estate bubble mania in full swing!!

BMT,

Maybe the way to play the China bubble  on this side of the pond is to short Treasuries.   But the dollar  . . . . . .   Jesus. 

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Re: China real estate bubble mania in full swing!!

Fourteen to sixteen times earnings???

I'm gonna be sick!!!

~ VF ~

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Re: China real estate bubble mania in full swing!!

BMT, thanks for the post. I get tired of all the China-worship in the blogosphere. Its nice to see the other side of coin pointed out occasionally.

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Re: China real estate bubble mania in full swing!!

If real estate people were intelligent enough, rent and mortgage functions would be merged. The value of a home would equal the principal on the home mortgage. The rent would equal the principal and interest due divided by the number of months remaining. In this way, more money can be made in used home sales yet prices would not escalate. Sales of homes of more responsible home owners would be preferred over that of irresponsible homeowners.

"Home equity", as it is called, is purely a metaphysical abstraction incompatible with the needs of sustainability. If the above measures were taken, "home equity" would be negative by definition.  This metaphysically incorrect reification of "home equity" is a tool used by feudalists to exploit the property of some percentage of the population certain never to reach 0% - an unintended consequence of the financial structure of the housing market.

Subprime JD's picture
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Re: China real estate bubble mania in full swing!!

JAG,

Ive noticed that the China bulls (Jim Rodgers, Peter Schiff) are getting awfully quiet on the Chinese economy. True, China has good longer term prospects but based on the data, facts, reality, they have grown too fast, too soon. ZH has posted some great articles as to why China will have a nasty bust in the next few months/years. Also, take a look at the Australian housing mess. Aussies are going bananas over real estate. My wife is from there and ALL of her family are in the RE game. I keep begging them to sell now and take some amazing once in a life time profits but they refuse to listen, they just say "there goes BMT with his doom and gloom". When China blows up australia will follow.

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Re: China real estate bubble mania in full swing!!
bearmarkettrader wrote:

JAG,

Ive noticed that the China bulls (Jim Rodgers, Peter Schiff) are getting awfully quiet on the Chinese economy. True, China has good longer term prospects but based on the data, facts, reality, they have grown too fast, too soon. ZH has posted some great articles as to why China will have a nasty bust in the next few months/years. Also, take a look at the Australian housing mess. Aussies are going bananas over real estate. My wife is from there and ALL of her family are in the RE game. I keep begging them to sell now and take some amazing once in a life time profits but they refuse to listen, they just say "there goes BMT with his doom and gloom". When China blows up australia will follow.

Many people assume that increasing prices means a better economy.

Even after accounting for how much housing has grown in China, the prices themselves are still higher than they should be. The current rule book of the RE game is the problem. If rent and mortage functions were unified, you can continue the same pace of housing construction much longer (translated: more development to bring people out of poverty at a more rapid pace) as the prices would not increase so fast for a given growth rate of housing inventory. I must be too far ahead of my time for many. No one yet has cared a much about a "third way" to pay for shelter. By limiting our minds to accept only two options "rent" or "mortgage" we transform humanity to an unfortuante fate, the endless tyranny of forceful eviction from the very land on which we stand upon. Solution: Don't accept only two options!

Subprime JD's picture
Subprime JD
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Re: China real estate bubble mania in full swing!!

China real estate bubble!

 

Some more empty condos

 

 

 

Cranes everywhere!!!

 

Wow...

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Re: China real estate bubble mania in full swing!!
bearmarkettrader wrote:

China real estate bubble!

 

Some more empty condos

 

 

 

Cranes everywhere!!!

 

Wow...

It seems that no matter what type of economy you have, Dubai capitalism or Chinese communism, buildings still look the same. If public sector investors behave like private sector investors, there isn't really much of a difference. A point in case: China has Dongtan and UAE has Masdar. Both are renewable energy developments. Both projects blend government and private initiatives.

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Re: China real estate bubble mania in full swing!!

It is over. Govt is stopping this. People are trying to dump the property now. Banks are tighten the lending. That made the chinese market tank under 3k.

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Re: China real estate bubble mania in full swing!!

Here's the Jim Chanos interview on the Charlie Rose show, in case anyone has any doubts as to the mother of all bubbles.  "A small office for every man, woman and child in China".  Case closed.

http://www.charlierose.com/view/interview/10960

 

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Re: China real estate bubble mania in full swing!!
mliu_01 wrote:

It is over. Govt is stopping this. People are trying to dump the property now. Banks are tighten the lending. That made the chinese market tank under 3k.

So what happens after that?

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Re: China real estate bubble mania in full swing!!

It's not over.

What’s so interesting about the China property bubble are the perverse incentives for government land sales. That was always part of the housing bubble in the U.S., but not nearly to the extent seen now in China as Xie explains.

 When it comes to interested parties, Chinese governments are knee-deep in the bubble. They get all the money from land sales. Land values have risen to half of the development cost. In hot spots, land costs more than the development — the governments want to collect the future price gain immediately.When properties are sold, transaction and profit taxes kick in. Developers pay more levies to the governments than they earn. When developers finally book their earnings, they must put it to work, as good Wall Street analysts would recommend, so they buy land. As land prices are much higher, their measly earnings aren’t enough, so they have to borrow. The governments get all their earnings and debt repayments. Can you blame them for boosting the market whenever it slips?

Xie makes the point very clearly that, while China property markets are clearly in a bubble, that bubble may not meet its pin for some time to come.There are a number of powerful forces at work, not the least of which is the Chinese government that may not be so keen on popping this bubble despite their recent moves to limit lending.

This article has been republished from Tim Iacono's blog, The Mess That Greenspan Made.

 

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Re: China real estate bubble mania in full swing!!

May 1st. the housing expo in shanghai, they used models wearing bikini and the number of visitors are down 50%.

http://news.creaders.net/photo/newsViewer.php?nid=429863&id=979416&aid=14

 

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Chinese property Bubble Update

If you’re not scared, you’ve not been properly briefed

by Alex Harrowell

10-9-2011

So, if Neal Stephenson, J.G. Ballard, Charlie Stross, and Mervyn Peake had collaborated on a movie about the near future of the global economy, perhaps we’d have something about Chinese property developers trying to create the perfectly blank fascimile of a mid-century European suburb in the outskirts of Shanghai, not too far from Ballard’s old concentration camp at the Lunghua airfield, when a massive financial crisis erupts across the Internet. After the Party shuts off access to the major banks, the developers turn to high yield paper traded in Hong Kong, until rates spike and even Hong Kong brokers won’t touch it no more. But plungers plunge, it’s what they do. Shark gotta swim. The music’s playing and while it’s playing, we’re dancing, as someone said.

That’s when they notice the people from Wenzhou, who have a deeply dodgy but robust store-credit network going back to the days when any private business at all was illegal and who knows, maybe even further, back to the chaos of the Civil Wars. They’re in all kinds of business so long as it’s shady and they look out for each other, and they lend money. You wouldn’t be that far wrong if you thought you’d seen them in the movies before, just not as Chinese. More pasta, less mantou. So they roll over the loans.

But this is all can-kicking; the ballroom days are over. Nothing goes quite like a bubble. And pretty soon the Wenzhou guys are in trouble themselves. Colourful identities in shoe-biz are hopping out of tall buildings and pizza-ing the sidewalk. And here’s the kicker. You kick loans out the front door, you gotta turn them over out the back. The deal is the same for Citigroup and dodgy bookies. So they set up “trusts” with big names and float them in Hong Kong…and the Royal Bank of Scotland is a big investor.

No. No. That’s not the kicker. The kicker is this – the big deal, the hacienda if it hadn’t been a nightclub, the daddy, is a whole suburb designed by one Albert Speer.

I’m making none of this up. It’s not old man Speer, of course – it’s his son, also an architect like his grandad and his great-grandad, who was commissioned to build a German town in Shanghai’s globo-shed airport’n'datacentre belt. Trouble, he took that to mean they wanted a town like a real German town, all post-war and either Christian or Social Democratic and square and energy efficient. They wanted Rothenburg ob der Tauber, or at least a lot of flickwerk fachwerk. Old Speer would have wanted something different – waiting for the end, he imagined he’d rebuild Germany in aluminium prefabs built by the idled Junkers aircraft industry, very Bucky Fuller, and even tapped up some of his staff to join him in his new practice.

About the Chinese property bubble and the increasing role of the mob, here’s Pat Chovanec. You’ll observe he’s getting a wee taste of the wumaodang in comments.

On Wenzhou and the property bubble, and spiking rates for speculation on margin like in ’29, JamesP at Jamie Kenny’s place. Some more general dread.

Here’s China Daily on sweatshop shoemaker-loansharks dropping out of skyscrapers. Wenzhou sounds like a mashup of Sicily and Leicester. With Chinese people. (Here, take one of these tabs, it’ll make sense.)

Here’s Bloomberg – hey, Bloomberg, even AFOE readers take that seriously – with great detail on Chinese shadow banks and RBS. More RBS, from the FT.

Finally, all that stuff about weird buildings and Albert Speer? I wasn’t kidding. Der Spiegel, auf deutsch. You bet.

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It's Burst

10/29/2011

China's Real Estate Bubble — Is The Collapse Here?

I continue to be dumbfounded by China's miraculous economic growth. I don't of course believe the official GDP statistics emanating from state officials, for they are as phony as a 3-dollar bill. But I do know that China makes up 40-50% of the world's commodities demand, and if their economy goes into a tailspin, prices for things like cement, steel, aluminum, and crude oil could drop precipitously. China also helps to drive global food prices as the diets of their newly middle class "consumers" grow richer in protein. So I keep an eye on China, although it is not the main subject of this blog.

Mike Shedlock is proclaiming that China's real estate bubble has burst.

The property bubble in China has finally burst. Denial has turned to anger as Shanghai Homeowners Smash Showroom in Protest Over Falling Prices

A group of around 400 homeowners in Shanghai demonstrated publicly and damaged a showroom operated by their property developer after the company said it cut prices. Home buyers had wanted to speak with the developer to refund or cancel their contracts but were unsuccessful, according to local media. One report said the price cuts exceeded 25% per square meter.

The local media reports said an unspecified number of people were injured.

Chinese media separately reported that another group of Shanghai homeowners gathered on Saturday to speak with Longfor Properties Co., after it dropped asking prices to 14,000 yuan per square meter from 18,000 yuan per square meter at a residential development in the city’s Jiading district.

The Shanghai property-owner demonstration found little support on China’s Internet, where most still expressed worries that housing prices are too high.

22% Drop Overnight

The drop from 18,000 to 14,000 yuan is a 22% overnight drop and that is just a down payment on the carnage that is coming...

The Financial Times ($ubscription) story China developer warns on price falls fills out the details—

China’s largest real estate developer believes the country’s property market, a key driver for the economy, has turned and expects conditions to worsen in the coming months as sales prices volumes decline further.

China Vanke, the country’s biggest developer by market share, said government efforts over the past year to rein in soaring prices were having a severe impact on the market and developers were being squeezed aftersales volumes in 14 of the country’s largest cities halved in September from a year earlier.

“We can see a trend of declining sales, especially in the major cities,” Shirley Xiao, executive vice-president at China Vanke, said on a conference call with investors on Tuesday. “Prices have begun to decline little by little so we think even buyers who are able to buy will choose to wait for now because they’re targeting even lower price cuts.”

That last part, where buyers wait for prices to fall further, is a hallmark of a bursting bubble.

Investors and analysts are watching the Chinese real estate sector closely for signs of collapse because of its importance to the overall economy and the effect a crash could have on everything from global steel and copper prices to social stability in the world’s second-biggest economy.

A 30 per cent drop in property prices would precipitate a collapse in fixed investment in China and the country’s investment-driven economy would experience a so-called hard landing after years of annual growth above 9 per cent, according to UBS economist Wang Tao.

Property investment accounts for more than 20 per cent of total fixed investment in China and UBS estimates almost 30 per cent of final products in the economy are absorbed by the property sector.

“A property-led hard landing scenario is quite likely in the next few years, even though we do not think the property market is about to collapse now,” Ms Wang said.

Why not now? China appears to be over the hump. Property prices are starting to decline in 14 China's largest cities, but it may take some time for those price declines to accelerate. Regardless of timing, the inevitable "collapse" has now begun. Massive deflation in Shanghai and the accompanying riots sure do look like signs of a collapse to me.

I fear the world has been so preoccupied by the endless debt soap operas in Europe—Days of Our LivesAs The World Turns— that they have not noticed what's happening in China, which may be much more important to the fate of the global economy over the long run. Although Australian analyst Stephen Roach says there will be no hard landing for China, someAmericans have become quite adept at identifying stages in the lifecycle of bubbles Smiley_glasses

Bonus Video — excellent, from ChinaForbiddenNews (with subtitles)

http://www.youtube.com/watch?v=KYiC_5P6HPw 

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