The Impending Collapse of China

Quote from mickmak:

Shanghai market is very different from western realestate market. Most of you don't know about Chinese culture, so you are only looking at the fundamentals.

Yes - housing prices compare to average salary is way out of line. 1.5million yuan for crappy 2bed (800sq feet). Average salary in Shanghai is around 2500 yuan a month.

Before 08, people in the US bought homes way over what they can afford with NINA loans (no income, no asset). But in China, you can't get that type of loans. You will need to have that 20% in cash - the way people save there, they have it. Most of them can put down more than 30% of the home value in cash because they buy the home with a family of 4 incomes - your parents, you, your wife. Sometimes, your in-laws incomes help you as well due to the 4-2-1 affect (4 grandparents, 2 kids each side, 1 grandchild)

But of course, the well connected don't need to put that much cash down in a home. They may not have that much "clean" cash in the bank. We all know that the well connected in China have plenty of hidden cash around - businesses, kick-backs, etc.

In either two cases, the buyers can obsorb a price correction - unlike what happend here.
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Well, let's see. They put 20% down, prices fall 60%, they lose their source of income, etc... and you're telling me they can absorb it?

Plus, you're completely wrong. In China, and in a lot of Asian countries, people take huge loans with very little money down, and no real hope of ever paying it back. I remember an article about a Chinese taxi driver with 25,000 dollars in credit card debt.

The bubble there is so much bigger than the US bubble, you can't even compare the two.

Plus, even at the bubble price, American homes were still far higher in quality and far cheaper than Chinese homes. Chinese homes have a lot further to fall in price before they become reasonable. And the dominoes have already begun to fall. Let's see how clever the world's bankers can get to keep all this from unfolding.
 
US market is free market, so market will dictate price. The market in China is different. Ultimately, it will be determined by the gov. Easy for them to say "no selling below this price". We can't have that here.
 
Say all the properties in the ghost cities had been already 100% paid for by some exetremely weathy people, and since the properties have been fully ownwed by those guys for very long time without any consideration/need of receiving rentals, I think the situation is just like many smart investors investing and owning vacant lands.

As the properties after many years of appreciation have provided their owners a lot of incremental wealth due to the smart investment decisions and right timing they made, they don't see the need of lowering the prices of properties in order to sell them quickly (disregarding whether the current demand is high or low).

If the above assumptions happen (or close) to be True, I can't see there is a serious problem in the near future. Just 2 cents!


http://www.businessinsider.com/vitaliy-katsenelsons-presentation-on-the-chinese-grey-swan-2010-7#-1
Q
Another simple minded analysis by American funds manager who cannot even get guess America’s economy right!

Please does some real research... majority of Chinese vacant property are brought and pay for in cash. Most properties require up to 60% down payment.

In an other word, if there is a down turn, these will not translate in to excess inventories as most rich Chinese will just sit on them and wait decades if they have to for the market to rebound.

The biggest different is Asia experienced an over leverage bubble back in 90’s America is experiencing something Asia learned to avoid.

I can only agreed there will be a slow down, a much needed slow down in China, but there’s such a huge buffer, China will not crash..

UQ
 
http://en.wikipedia.org/wiki/Chinese_property_bubble

http://en.wikipedia.org/wiki/Real_estate_in_the_People's_Republic_of_China

Q
Expert opinions
[edit] Supporting bubble theory

* Cao Jianhai, professor at the Chinese Academy of Social Sciences, who was quoted in an April 2009 report saying "Prices may not fall in the near term but I expect a collapse starting next year, followed by many years of stagnation."[16]
* Andy Xie, independent Shanghai economist, who was quoted in a March 2010 report saying "China's property market is a massive bubble."[17]
* Zhang Xin, CEO of Beijing real estate developer SOHO China, who was quoted in a January 2010 report saying "We don’t really have a view on when it will end; [but] we do have a view that this is a bubble."[18] Ms. Zhang does not expect a significant drop in pricing.

[edit] Opposing bubble theory

* The World Bank, which said in a November 2009 report that Chinese home prices had not outpaced increases in incomes on a nationwide level, therefore dispelling worries of a looming bubble.[12] However, in its March 17, 2010 quarterly report, the group said China needed to raise interest rates to contain the risk of a property bubble.[19]

[edit] Alleged causes

* Low interest rates[20] and increased bank lending,[21] beginning in 2003 under Wen Jiabao which allowed cheap credit for the construction and purchase of property while making competing debt investments less appealing
* Local government reliance on land sales for income (accounting for up to 50% of revenue), incentizing the continued sale and development of land[22]
* Limited access to foreign investments for Chinese citizens, artificially increasing the appeal of domestic investments such as property[23]
* Spending from the China economic stimulus program finding its way into real estate[18][24]
* Cultural pressures encouraging home ownership, particularly for men seeking a wife[25][26][27][28]

[edit] Government response

A new nationwide real estate sales tax was introduced in China in late 2009 as a measure to curb speculative investing.[29]

In early 2010, the Chinese cabinet announced it would monitor capital flows to "stop overseas speculative funds from jeopardizing China's property market" and also begin requiring families purchasing a second home to make at least a 40% down-payment.[30]

A mortgage discount for first-time property buyers – which had offered fixed, 5% 20-year mortgages at just above 4% – was also eliminated.[17]
UQ
 
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