Quote from Cutten:
The trouble is, Shanghai is about 7-8 times cheaper. In 15 years time it will probably be *more* expensive than Singapore. Why buy an already mature market?
Ok Cutten, here we go. (And I appreciate your patience this past week.)
Iâll limit this to two main points:
1. Your comparison is not apples-to-apples.
I know the surveys you are looking at for both Shanghai and Singapore refer to âluxuryâ units but Iâm telling you, this term does not mean the same thing in each city. The comparison is skewed at both ends:
The Shanghai luxury category you see referred to is equivalent to middle class or even lower middle class housing in a developed market. Yes, it is luxury in Shanghai, but is best compared to mid-level of total housing in Singapore, public and private. Chinaâs low-end housing is non-existent in Singapore. Even the government housing here is not that bad.
In Singapore, some 85% of the population lives in extremely discounted public housing called HDB units, or Housing Development Board. The private housing here is heavily skewed toward the luxury end. Yet your numbers appear to subdivide Singapore private housing into low/middle/high-end. That is a glaring misrepresentation. Iâve yet to see private low-end housing here, and certainly nothing at the level you can find in and around Shanghai. Thus your Singapore numbers appear skewed to the high-end, and Shanghai vice versa.
Iâve visited these âhigh-endâ places in Shanghai and frankly many of them are outright scary. In brand-new units doorknobs, light fixtures, plumbing, and wiring doesnât work. The man-made pond out front likely harbors mosquitoes that infiltrate the complex through the plumbing. (I know it sounds funny but you donât learn these things âtill youâve been there.) I specifically recall visiting a new development by a Taiwanese firm. The place was still under construction, with work crews in abundance and less than 5% occupancy, yet most of the metalwork, gates, windowpanes, were already rusting over. Shoddy, shoddy, shoddy, standards. This is not reflected in the surveys you cite.
*I set aside an article from a local paper last week: âA survey has found that nearly 10 per cent of building windows in Shanghai are faulty and pose a serious public threat, adding to skyscraper woes in Chinaâs financial hub, state press reported.â Just to highlight my point.
2. The Shanghai market is already extremely speculative and overheated.
To better understand the Shanghai market it is extremely valuable to take a look at the Hong Kong, Taipei, and to a lesser extent, Singapore markets. This is because all of these markets are âplayedâ by the same Chinese speculators. Iâm referring to wealthy Chinese who, for the most part, live outside Mainland China. Hong Kong went through its own bubble, peaking with the 1997 handover and falling ~65% from there before beginning to recover. Taiwan and Singapore are still falling â why????? Because everyone and their uncle is selling these cities and buying Shanghai. What you find in Shanghai is entire buildings owned by speculators â Taiwanese, Singaporeans, Honkies, Indonesian-Chinese etc. etc. This speculative mania may hold up âtill the 2008 Olympics, or it may not.
The main point is that these markets are defined by extreme boom and bust cycles not seen in the developed world for some time and right now everyone is already buying Shanghai.
Consider this from an internet article: "The supply to demand ratio for high-end apartments is about 8 to 1 on the local second-hand housing market," said Meng Jun, senior manager of Shanghai Stanford Property Co Ltd.
This begs the question: When the speculators leave, wherefore your theory that Shanghai will be more expensive in 15 yearsâ time?
Finally, you mentioned that Singapore is âan already mature market.â Oddly enough Singapore is celebrating its 38th birthday as a nation tomorrow. Yes, that is 3-8, no zeros. I believe the PRC has been around longer than that. I would offer that the rising tide of Chinese immigrants to Singapore might be the beginning of a monumental trend. Singapore is not that big a place, and it wouldnât take many immigrants to get prices going here. As Chinese become more affluent many will look to secure a better life in English speaking countries, with quality schools and quality of life. With proximity to China, and another ethnic Chinese dictatorship in power, you couldnât ask for a more attractive solution than Singapore.
As a real estate play on the growing prosperity of China, today Iâd feel much more comfortable buying a deflated Singapore market than the wicked roller coaster that is Shanghai, already flush as it is with hot money.
In sum, it looks like Shanghai may be 2-3x cheaper than Singapore, apples-to-apples. That being said, they are two very different markets and IMO Shanghai should be cheaper. My $$ says Shanghai will prove just as, if not more volatile than HK, Taipei, Singapore, and more volatile than people realize. Iâd rather buy near a bottom than near-term top, which is where I fear we are.
