Does China have it's own bubble.

[timb]

I came across this and thought it relevant. Anyone disagree with this persons views?

 

Email from a Chinese on China's bubble

[tsap seui]

It used to be called "corrections" in the housing market here. I think there will be corrections over in China too. What went on in the markets in our larger citys was just plain idiotic, but it reached a plateau and dropped...hit a low and started back up...over and over again.

 

In our county you had the banks and their practices thrown into the mix this time.

 

Quite honestly, and only from my limited observations, China is one of the most expensive places I have ever been. I don't see how the locals can afford to buy anything, much less a home.

 

Yeah, we have our conversion rate and send our women our yankee dollars as well as get around on the conversion rate when we travel over there, and it can seem cheap...but I stand on my belief that everything is EXPENSIVE in China. You take away our conversion rate and try visiting China, or buying a home there...or even buying food or those beautiful sexy clothes.

 

Will they have a bubble pop...correction? Sure, but I don't think it's gonna be devastating to the population at large.

 

tsap seui

No China expert...just a been around the block observer

[Guest Tony n Terrific]

My wife told me the same thing is happening in Nanning. People are going crazy there and they are doing it all on credit. OPM mentality. (Other Peoples Money). Last year we went to an American ex-pats home that he just bought for roughly $81,000 now today it is approaching the $250K mark. Who can afford this real estate in China? For that matter who can afford this house in the US now with over 1/2 of the people in hock up their eyeballs now?

When China's real estate market collapses which it surely will, it will not be a pretty sight. Their currency will shake, rattle and roll. Inflation will be heartbreaking to the average Chinese person.

Ni Hao. The Dragon is approaching the door.

Edited April 5, 2010 by Tony n Terrific (see edit history)

[shadeOgray]

Yeah I see the housing market in the near future here taking another big hit.

[Tony_onrock]

My wife told me the same thing is happening in Nanning. People are going crazy there and they are doing it all on credit. OPM mentality. (Other Peoples Money). Last year we went to an American ex-pats home that he just bought for roughly $81,000 now today it is approaching the $250K mark. Who can afford this real estate in China? For that matter who can afford this house in the US now with over 1/2 of the people in hock up their eyeballs now?

When China's real estate market collapses which it surely will, it will not be a pretty sight. Their currency will shake, rattle and roll. Inflation will be heartbreaking to the average Chinese person.

Ni Hao. The Dragon is approaching the door.

 

Nanning is going crazy. Just look at the numbers for land auction!

[shenzhen]

Finance professor Xinzhong Xu of Guanghua assessed property values in China and concluded that China may well be inflating a real estate bubble.

 

Xu agreed that the signs of a bubble are there, even though there is no simple yes or no indicator. He added: ¡°The more difficult question that nobody can answer is: When is this bubble [in China] going to burst?¡±

 

http://www.knowledgeatwharton.com.cn/index...mp;languageid=1

 

However it seems China is trying to put some measures in place to prevent a repeat of USA 2007.

[chengdu4me]

The CCP is going to have to do something about housing prices damn fast! The average cost of a home in Beijing rose by 47%, Shanghai 52%, Shenzhen 51%, Guangzhou 51%, Chengdu 48% in the past year. Curbing building projects will have a huge negative effect. The only answer is to force/give incentives to developers to build more, more, more!

 

The "law" states that 70% of all new homes must be under 90 Sq/meters so that "average" Chinese family can afford one, but that is not happening around here. Most new home developments are over 110 sq/meters and some entire residential developments have their smallest homes starting at 185 sq/meters and up. I saw a development of 4,000 homes in Wenjiang that the smallest home was 285 sq meters at a very fair price of only 11,000 a sq meter. I saw a different development that was nothing but condo style villas, attached homes in clusters. Each home was three stories and they all were on different levels. Some had garages under them, some not, some were built on raised earth, some not. It was a really cool looking development, but I can't even imagine what the prices were!! Each home was 500 sq meters.

 

While the banks are advertising that it is possible to get a loan for 80% of the value(20% down payment), it is rare to get that. You need 30% down and all the fees/taxes/commissions to get the loan approved. Sometimes you need even more because the bank will not appraise the home for the asking/selling price.

[Stepbrow]

The CCP is going to have to do something about housing prices damn fast! The average cost of a home in Beijing rose by 47%, Shanghai 52%, Shenzhen 51%, Guangzhou 51%, Chengdu 48% in the past year. Curbing building projects will have a huge negative effect. The only answer is to force/give incentives to developers to build more, more, more!

 

The "law" states that 70% of all new homes must be under 90 Sq/meters so that "average" Chinese family can afford one, but that is not happening around here. Most new home developments are over 110 sq/meters and some entire residential developments have their smallest homes starting at 185 sq/meters and up. I saw a development of 4,000 homes in Wenjiang that the smallest home was 285 sq meters at a very fair price of only 11,000 a sq meter. I saw a different development that was nothing but condo style villas, attached homes in clusters. Each home was three stories and they all were on different levels. Some had garages under them, some not, some were built on raised earth, some not. It was a really cool looking development, but I can't even imagine what the prices were!! Each home was 500 sq meters.

 

While the banks are advertising that it is possible to get a loan for 80% of the value(20% down payment), it is rare to get that. You need 30% down and all the fees/taxes/commissions to get the loan approved. Sometimes you need even more because the bank will not appraise the home for the asking/selling price.

 

 

With the numbers that you have posted, I would say that the horse has left the barn. It is just a matter of time until the bubble bursts, and then the fall out from that. The results could be dire for the Chinese economy as a whole.

[TLB]

Sometimes you need even more because the bank will not appraise the home for the asking/selling price.

 

Fascinating; it appears the banks' votes are in on this one...

[tsap seui]

Sometimes you need even more because the bank will not appraise the home for the asking/selling price.

 

Fascinating; it appears the banks' votes are in on this one...

 

I found that statement intriguing as well TLB...a bank with someone with brains in control??? What a novel thought, thinks I.

 

tsap seui

[Tony_onrock]

Sometimes you need even more because the bank will not appraise the home for the asking/selling price.

 

Fascinating; it appears the banks' votes are in on this one...

 

I found that statement intriguing as well TLB...a bank with someone with brains in control??? What a novel thought, thinks I.

 

tsap seui

[Tony_onrock]

banks in china are completely different animals than their counterparts in the US. They lend based on quota and instructions from the central bank. In the beginning of the year some banks refused to allow draw down even for approved loans because the quota changed mid-way and they are out of quotas. This goes for residential mortgages as well as commercial loans. It is not based on commercial risk and return decisions.

[tsap seui]

banks in china are completely different animals than their counterparts in the US. They lend based on quota and instructions from the central bank. In the beginning of the year some banks refused to allow draw down even for approved loans because the quota changed mid-way and they are out of quotas. This goes for residential mortgages as well as commercial loans. It is not based on commercial risk and return decisions.

 

 

Oh well, one could have only hoped they were completely different animals because of intelligence, instead of quotas. I remember in 2005 how all the money brokers were down to giving what were practically "zero paper" loans, the lende could just tell them what they were making and simply have a credit score within the margins...and get money on a home. The money lenders were grabbing their 2 or 3 grand off the top and running with it, who cared what was gonna happen down the road...WHICH IT DID...now try and get a loan.

 

I had hopes China would look at what we did, and blow the bubble making machine away from their shores...I'm so rational and stupid like that sometimes.

 

Yeah baby, bend to America's will and raise that rmb, let your housing industry continue to go nuts...watch the bubble pop.

 

tsap seui

 

Reminds me of......Who's in charge here soldier?...I thought YOU were

[SmilingAsia]

In big cities like Beijing, Shanghai, Shenzhen and Guangzhou, "Virtual Funds" are important elements which made bubbles in real estate market.

1. corruption money, which one cannot estimate.

2. Business environment deteriorated, some business people just quit manufacturing and put their money in real estate market.

 

If RMB appreciates, more manufacturing will be killed and more virtual funds will go to the real estate or stock market.

Bubbles - China's economy has finished its first step to be snipped by international financial speculators.

This happened in Japan in 1970s - economy being snipped, followed by more than 10 years of depression.

Thailand, Vietnam, Hong Kong - they were snipped financially one by one.

[Stepbrow]

I caught this article on China Daily. Seems like this Japanese professor knows what he is talking about. His plan seems like a good solution to the real estate bubble. http://www.chinadaily.com.cn/opinion/2010-...ent_9750214.htm