THE BUBBLE IN CHINA IS FORMING AGAIN
24 November 2009 by Cullen Roche
10 Comments
Here we go again….The bubble in China’s property market has just started to form, according to Wee Liat Lee, analyst, China property research at Nomura Securities. But he tells Ajay Kapur of Mirae Asset Securities, CNBC’s Martin Soong & Cheng Lei that the situation is still manageable.
TPC, you trade futures?
Absolutely. What’s on your mind?
I’ve been noticing the sharp correlation between the dollar and HK stocks. The U.S. futures market doesn’t seem to quite respond until the market opens in the morning. Have you been noticing this?
I’ve been watching this….Check HK tonight and see if it properly corresponds with a futures ramp or decline.
Here we go again! Trying to create sensational headlines using crystal ball gazing by adding spin to something which your expert didn’t say.
Wee Liat Lee (of Hong Kong, not China) used the term “might be in first year of a bubble cycle” not “is in”. There is a hell of a difference, might there not be? He spoke about the ratio of household income to cost of house and that is in very good health. He also mentioned that 25% of all homes bought for cash and 50%(?) with less than 50% mortgage… all healthy stuff too. He also said that the Chinese Government is flooding the market with cheap housing through State Owned Housing Companies and are addressing short term land shortages by opening up major land parcels like in Shanghai.
So where is the real bubble in all of that?
One needs to know that there is a major population drift going on in China as people migrate from the countryside to the cities particularly those on the eastern seaboard. This creates demand for housing and it seems that small cities are created within an 18 month period within already established cities. You also need to know that when you “buy a new house” in China that you are in most cases actually buying a concrete box within an apartment block. The buyer then has to pay to have non-structural walls installed, walls rendered and painted, tiling and flooring, bathroom and kitchen cabinetry, sinks etc, etc, etc installed. This adds to the cost and is reflected in the price when this “house” is sold. The reality is that the square meter price reflects fairly closely the cost of the box and all the fitout.
Is this creating an “inflationary housing bubble”? Me thinks not and when the questioners of Wee Liat Lee pushed him, he didn’t think so either.
So when you are in desperate need of a sensational headline or some on the ground insight into what is actually going on in China, please let me know. Maybe I can tell you of the Black Economy here? It is under the radar for all those not living in China and effects what is going on without ever appearing in official figures?
William, you should really spend more time reading your own newspapers before accusing me some being sort of sensationalist. We all know you think China is perfect and that they can make no mistakes (no biases on your end of course!), but please pay a bit more attention to what your own leaders are saying before you run over here and accuse me of saying something that Donald Tsang and other prominent Chinese leaders have been saying for months:
To quote Mr. Tsang:
“We have a U.S. dollar carry trade at the moment. Where is the money going — it’s where the problem’s going to be: Asia. You can see asset prices going up, not only in Korea, in Taiwan, in Singapore and in Hong Kong, going up to levels that are incompatible or inconsistent with the economic fundamentals.”
Sounds like they’re increasingly concerned about a bubble doesn’t it?
A few more headlines from Chinese newspapers:
“China’s Economic Information Daily recently warned that property prices in Beijing and Shanghai rival those of Tokyo even though average wages are just 1/10 of those in the Japanese capital. The newspaper pointed out that the increase is the equivalent of 10 years’ worth in normal times.”
Of course, I’m not the only ignorant person concerned about the liquidity bubbles forming in some markets. Some guy named Bill Gross is saying the same thing:
http://moneynews.newsmax.com/streettalk/bill_gross_china_bubble/2009/11/23/289866.html
But no, don’t let my “sensational” headline skew your unbiased and practical view of the country you reside and depend on for a living. That wouldn’t be very pragmatic of me now would it?
As I said, there is a “black economy” here in China. Officially reported incomes bear little resemblance to actual incomes.
There is so much paper money here that corruption is rife throughout all levels of Government, Industry and Commerce. As a result you have say a Customs Officer whose official pay rate is say 4000 RMB per month, who collects in bribes, 1-2000 RMB each time he processes shipments arriving in his port of entry, and he may process 20-30-40+ a day. Now those brides are 100 RMB bank notes in envelopes.
So when people come to terms with this in their calculation of true income in relation to cost of housing then I will become a headline believer.
With regards to Buying Property in China as an Investment, it is difficult for foreigners and they can only buy one “house”. Plus no one in China ever owns the land the “house” sits on, instead you get a 70 lease of it.
After 3-5 years the building in which your “house” is located is already starting to fall down due to shoddy building practices. Then if your “house” is located in a desirable area, some greedy Property Developer will go see one of his friends in local Government and give that person a sack load of money. All of a sudden you receive a letter from the local Government saying they you have to move out within the month as they are buying your house at market value or below (most often).
Obviously the new “houses” will sell for more than the old ones… inflationary? start of a bubble?
might as well join in some sensationalistic journalism…
http://www.creditwritedowns.com/2009/11/goldilocks-is-not-sleeping-in-america-anymore-shes-now-in-china.html
Finally an article that makes sense and based on reality not crystal ball gazing from afar!