Real Estate is dying? Investment-wise what is the next Asset Class Du Jour?

Ok, obviously you don't have any idea where these markets are. So don't go telling us Shanghai is 7-8X cheaper than Singapore, or anywhere else.

Price per square foot is easy enough in each city, but getting an appples-to-apples comparison is next to impossible without some feet on the ground. A Shanghai sg. ft. is not worth a Singapore sq ft because the differences in construction standards (Oh my Gawd!), air quality, availability of schools, regulatory scheme, crime, etc. etc.

As for prices, do your own homework.

 

Based on the most recent information I have, a second hand luxury apartment in downtown Shanghai goes for an average of 8,642 yuan/sq m (source - Shanghai Centaline Property Agency). That's approx $1050 per sq m, or just under $100 per sq ft, for reasonably high end residential property. The average apartment price in Shanghai is $55 per sq ft (source - Chinese National Bureau of Statistics), which is probably more reflective of prices paid by locals. Obviously for very high end you can go much higher, up to $200+. Still no way near Singapore though.

In comparison, luxury apartments in good locations in Singapore go for an average of about S$900 per sq ft, or approx $520 US (source - CB Richard Ellis, Singapore). I admit I do not follow the mid and low end Singapore real estate market all that frequently, but as of mid 2003, mid-end residential real estate went for about S$500-700 per sq ft ($290-400), and low end about S$350-400 ($200-230) (source - Daiwa Institute of Research).

Thus higher end apartments have a disparity of about 5-1, mid-range the price ratio is about 6.5-1. Low end can range from 7-1 up to 10-1, depending how far out in Shanghai you go, and how low down in quality.

Based on price per sq ft estimates gleaned from reputable sources operating in the respective local markets, we find that typical Singapore property ranges from approx 5 to 10 times as expensive as that in Shanghai. The average is pretty close to the 7-8 times figure I quoted in my initial question to you. As I hope you can see, I did not just pluck the numbers out of thin air - they are based on estimates from real estate professionals working out there.

Now, I freely admit that there could be some error in these calculations. However, given that I have referred to concrete price averages from reasonable sources, I suggest that the burden of proof is now on you to refute my claims. Please explain why these numbers are inaccurate, or at least to provide some reputable sources whose prices differ wildly from the ones I used.

Specifically, you said "Not even by the most fantastic stretch of imagination can Shanghai RE be considered cheaper than Singapore's, let alone 7-8X ...". Perhaps you could provide evidence that shows Singapore property to be no more expensive than that in Shanghai?

You also asked "Kindly make clear whether you are talking about commercial and/or residential real estate, and by what criteria you measure cost and value". I was referring to residential real estate, and I measure price by the standard international measure - current average selling price per square foot (or square metre, depending on your preference). As for the comparability of a square foot, if I can buy or sell a square foot for x dollars in one place, and 5x in another, then they are directly comparable in terms of price. To a property investor, all that matters is the market price. Construction costs and quality of life are already discounted in that price. Remember, this thread is about the next potentially attractive investment asset classes, not about a nice place to get your next expat posting or where Asian parents should send their kids to school.

Once again, I look forward to receiving your price estimates and the sources you got them from.

 

Ok, we are getting started. Problem is, and I've seen it before, that someone will make a preposterous statement with the true intent of fishing for someone else to do some real work to refute them.

At least you've put some thought into this, for which you deserve credit.

But I prefer to actually respond later this weekend as we just moved into a new home (Singapore) yesterday and I'm beat. Not to mention my trading desk is still being reassembled and a response will require a small amount of work on my part.

Talk at you later ...

 

Ok Cutten, here we go. (And I appreciate your patience this past week.)

I’ll 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 ‘luxury’ units but I’m 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. China’s 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. I’ve 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.

I’ve visited these ‘high-end’ places in Shanghai and frankly many of them are outright scary. In brand-new units doorknobs, light fixtures, plumbing, and wiring doesn’t work. The man-made pond out front likely harbors mosquitoes that infiltrate the complex through the plumbing. (I know it sounds funny but you don’t learn these things ‘till you’ve 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: “A 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 China’s financial hub, state press reported.” 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 ‘played’ by the same Chinese speculators. I’m 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 – why????? Because everyone and their uncle is selling these cities and buying Shanghai. What you find in Shanghai is entire buildings owned by speculators – Taiwanese, Singaporeans, Honkies, Indonesian-Chinese etc. etc. This speculative mania may hold up ‘till 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 years’ time?


Finally, you mentioned that Singapore is “an already mature market.” 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 wouldn’t 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 couldn’t ask for a more attractive solution than Singapore.

As a real estate play on the growing prosperity of China, today I’d 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. I’d rather buy near a bottom than near-term top, which is where I fear we are.

 

Forex. Trading fx is safer than keeping your money in a security deposit box.

 

What a dumbass thing to say. The sad part of it is, you're serious.

 

Buy a decent home that needs just a little TLC, put a tenant in it with a lease-option, and you can easily turn 80%-100% ROI with 20% down.

Thats hard to beat in the stock market, I've owned homes in 5 cities and NEVER had one depreciate. Although it isn't as fun as trading, I've never awakened in the morning to find the value of my home has dropped 10%!

There are many parallels to trading. It all depends on what you buy, when you buy, and how long you hold.

 

I hope this 'get rich by owning rental property' craze ends soon.

I personally am tired of perfectly good houses sitting empty (or suffering due to deferred maintenance) because some joker saw an infomercial, and thought they could be a landlord and make lots of money.

 

Ah, but those new landlords who are now making payments without any income every month because there not enough renters around, are now ripe for a nice discount offer to buy their place, aren't they? Just like a trader who is watching his money go down the drain, many of them are ready to cut their losses and move on.

Isn't capitalism fun?

 

re: Ah, but those new landlords who are now making payments without any income every month because there not enough renters around


I believe just the opposite is true. If you do your homework there are many areas that have rental deficiencies.

With more expensive houses and interest rates beginning to creep up more people are going to have to rent. This is a great time to get into renting properties. You have to think outside the box. Who rents? College kids rent.... look at college towns. Lower middle class workers rent... Look into blue collar towns. Young people who can't afford to buy rent..... Look into areas that they live. etc.


If you do your homework and play your cards right rental income is the best way to make a living. You pay a handy man to do all of the dirty work while you sit on your boat and collect rents once per month. And best of all it will add stability to a day traders income!