Shanghai real estate in HUGE HUGE HUGE bubble

Discussion in 'Wall St. News' started by S2007S, Dec 18, 2009.

  1. S2007S


    Its happening right now and when this one bursts just like the one in the US, get ready for another global collapse in the markets. If things keep going the way they are going you can expect to see the housing market there to fall hard as early as Mid 2010 to mid 2011. The 1st paragraph alone has bubble written all over it, $483,000 to $615,000 in only 6 months, their bubble is about to burst, and please don't tell me its different this time around.

    ‘Sizzling’ Shanghai Homes Defy Tax, Bubble Concerns (Update1)
    Share Business

    By Bloomberg News

    Dec. 18 (Bloomberg) -- Gloria Gu paid $483,000 for an apartment near Shanghai’s financial district so her 3-year-old son could attend one of the city’s best kindergartens. Six months later, a similar place in her building sold for $615,000.

    “Prices are way past reasonable,” said Gu, 31, a food company manager who bought her three-bedroom, 140-square-meter (1,507-square-foot) apartment in the Pudong area in May. “The market is too good to be true.”

    Escalating prices in Pudong, transformed within two decades from vegetable fields to skyscrapers for Citigroup Inc. and HSBC Holdings Plc, underscore a Chinese property market that set record highs this year after the government unleashed $1.3 trillion in new bank lending to counter the global recession.

    Premier Wen Jiabao said Nov. 28 that property speculation must be suppressed, and the government on Dec. 9 reinstated a sales tax on homes sold within five years of purchase after reducing the period to two years in January. That change is superficial and will have minimal impact, said Lu Qiling, an analyst at Shanghai Uwin Real Estate Information Services Co.

    “It’s only a token measure,” Lu said. “It won’t change the upward trend in housing prices.”

    Government ‘Dilemma’

    China’s leaders won’t make major policy changes because they are preoccupied with economic growth and social stability, overriding concerns that rising property prices are forming a bubble, said Clement Luk, an analyst at Centaline Property Agency Ltd. in Shanghai.

    “The government is clearly in a dilemma,” Luk said. “It wants to address the surging property prices and concerns on bubble-bursting, yet it dares not take drastic measures for fear of hitting the market too hard.”

    The nation’s real estate and stock markets are a “bubble” that will burst when inflation accelerates in 2011, former Morgan Stanley chief Asian economist Andy Xie said in an interview in Hong Kong today.

    “China’s asset markets are a Ponzi scheme,” said Xie, now a Shanghai-based independent economist. “Property is heading for one huge bust that will take a year and a half to unfold.”

    Home prices in 70 major Chinese cities, including Shanghai, rose 5.7 percent from a year earlier in November, the fastest pace in 16 months, according to government data. The property market was a prime driver of the economy’s 8.9 percent growth in the third quarter.

    Japan Scenario

    “Rapid” increases will continue through the first half of 2010, said Zhou Hu, a real estate analyst at Bohai Securities Co. in Beijing. Prices will rise for the next three decades and peak in 2040 at 2.5 times current levels, according to China International Capital Corp. estimates.

    China risks a “similar asset bubble” to that in 1980s Japan unless lending is reined in, Erwin Sanft, head of China and Hong Kong equities research at BNP Paribas, said Nov. 23.

    The Nikkei 225 Stock Average surged sixfold and commercial property prices in metropolitan Tokyo rose fourfold before the bubble burst in 1990, triggering what Japanese call the “lost decade” of little or no growth. The Nikkei trades at a quarter of its December 1989 peak.

    “Over liquidity will lead to asset bubbles in equities, real estate and commodities,” China central bank adviser Fan Gang said Nov. 18. “That’s something we really need to watch.”

    Disney, World Expo

    China Vanke Co., the country’s largest publicly traded developer, said this month that sales in the first 11 months rose 36 percent to 57.9 billion yuan. Thirty-three of 35 analysts have a “buy” rating on the Shenzhen-based company’s stock.

    The Shanghai Property Index, which tracks 33 developers listed in the city, has more than doubled this year, compared with a 75 percent gain for China’s benchmark Shanghai Composite Index. Today, developers fell, led by Vanke, on concern the government will step up measures to curb property speculation.

    Vanke plunged 5.4 percent to 10.66 yuan at the midday break, after China raised the required down payment on land to 50 percent. Poly Real Estate Group Co., the nation’s second- largest developer, tumbled 4.9 percent to 22.50 yuan, a ninth day of losses. The Shanghai property index slumped 4.2 percent, the most since Nov. 27.

    Pudong, covering 1,210 square kilometers (467 square miles) from the East China Sea to the Huangpu river, is home to China’s largest stock exchange and its biggest futures exchange by value.

    China said in March it aimed to make Shanghai a world financial center by 2020 by allowing more foreign participation in its capital markets. Walt Disney Co. will build its first mainland theme park in Pudong, and Shanghai is spending $4.4 billion on subways, roads and other infrastructure before next year’s World Expo there.

    ‘Sizzling’ Market

    Average new apartment prices in Pudong gained 57 percent this year to a record $4,061 per square meter, while overall prices for China’s richest city rose 26 percent to a record $2,434, according to Shanghai Uwin, which tracks prices.

    Accountant Wang Jin waited in a downpour for six hours last month to buy into a Pudong apartment project by Shui On Land Ltd., a Hong Kong-traded developer controlled by billionaire Vincent Lo.

    More than 800 people lined up outside a sports stadium to buy about 220 units costing about $4,100 per square meter on average.

    Mortgages Surge

    “I couldn’t believe what I saw when I got there,” Wang, 37, said. “I know the property market is sizzling now, but this?”

    New home mortgages in the first nine months of this year totaled about $139.5 billion, quadruple the amount offered a year earlier, the central bank said.

    Cao Guanzhou, a real estate agent in Shanghai, tried to take advantage of the boom. After selling his Pudong apartment in May for 54 percent more than what he paid three years ago, Cao closed his hot pot restaurant and started selling properties.

    Business is slow, he said.

    “Too many agencies have opened up,” Cao, 51, said. “There’s too much competition now.”
  2. S2007S


    Top China developer warns of property bubble
    Published on Tue, Dec 22, 2009 at 12:16 | Updated at Tue, Dec 22, 2009 at 12:32 | Source : Reuters

    China Vanke, the country's second-largest property developer, warned of a property bubble forming in major cities including Beijing and Shanghai as a result of the surge in bank lending this year, a local newspaper reported.

    Vanke Chairman Wang Shi is the latest of China's top developers to sound the alarm after housing prices soared beyond pre-financial crisis levels, their climb halted only briefly by the global turmoil.

    "There is currently no bubble in second- and third-tier cities, but I am very concerned that the bubble will spread to these cities," Wang was quoted by the Oriental Morning Post as saying.

    Another major developer, SOHO China, warned last week that bubbles were swelling throughout the Chinese property market, particularly in second-tier cities.

    About one-sixth of China's more than 9 trillion yuan ($1.3 trillion) in new loans this year has flowed into the property sector.

    Concerned that an asset bubble could stir social and economic instability, Beijing has vowed to combat overly fast price increases, although its moves to date — such as stiffer rules for transaction tax — have been relatively mild.

    Wang said developers needed to look at what could happen over the next decade, not only this year or next, and to be prepared for the eventual bursting of the housing bubble.

    "When the market changes or turns bad suddenly, what shall we do?" he said.
  3. use ur retirement savings and short FXI
  4. S2007S


    The warning is out there, lets see how long it takes before reality kicks in and people wake up and notice this bubble is about burst. This is going to put a damper on things, don't you think. Keep buying stocks and bidding up emerging markets and just ignore the inevitable. Just like they did in our markets in 2007, everything was going perfectly until everything collapsed all at once.

    Chinese Analyst Warns of Real Estate Crash
    Epoch Times Staff Created: Dec 23, 2009 Last Updated: Dec 23, 2009

    In the wake of Dubai’s debt crisis, wary analysts are closely watching China’s real estate market for signs of a similar crash. Among the more pessimistic observers is Chinese commentator Shi Hanbing who warns China to prepare for the imminent burst of the real estate bubble.

    In his December 18 blog post titled “China Should Prepare for a Real Estate Crash,” Shi compares China’s current situation to Japan before the disastrous crash in the early 1990’s, and identifies alarming similarities between the two economies.

    Shi attributes the burst of the Japanese asset price bubble to three factors: speculation and over investment in real estate, excessive issuance of loans, and a population structure change. All three, according to Shi, are characteristic of today’s Chinese economy.

    Shi believes that the coming Chinese crash would be more catastrophic than the one that shattered the Japanese economy two decades ago, because China is more fragile without the advanced technology and a relatively wealthy populace which enabled Japan to survive the crash.
    Speculation and Over-Investment

    According to Shi, recent years have seen a huge gap between the profits in the real estate market and other industries in China. Shi says that the profit gap has been further widened by the increased tax rates that local governments imposed to raise stimulus funds for the central government. The razor thin profit margin has inevitably driven large amounts of capital to the lucrative real estate market, which blew the bubble even bigger.

    He expresses his concerns on the excessive influx of capital into real estate from other industries as well as public wealth. “If the [financial] foundation of manufacturing industries is shaken ... how can a real-estate-reliant China handle the fluctuations, or even a crash, of the real estate market?”
    Excessive Issuance of Loans

    Shi adds that similar to pre-crash Japan, China has been relentlessly granting loans since the government’s stimulus plan began. In the first nine months of 2009 alone, China issued loans totaling RMB 8.67 trillion yuan (US$1.27 trillion). Though it is not known how much of these loans have been pumped into the real estate market, he suggests the amount should be huge considering the high number of land sales in China’s major cities during the same period of time.
    Population Structure Changes

    Shi notes that Japan’s falling birthrate after the baby boom generation also contributed to the burst of the real estate bubble. He reminds readers that China’s birthrate has been declining rapidly over the past decade, a fact that many have ignored. “In ten years when the population structure is drastically different … and excessive housing floods the market,… who will be there to support the real estate bubble and the illusionary prosperity built on this bubble?”

    Shi concludes his blog by criticizing interest groups who eulogize the real estate market growth while hiding its dire prospects from the public. “Remember, China lacks Japan’s two pillars (technology and wealthy populace), and is therefore very vulnerable to a real estate crash,” he warned. “It is high time to give some serious consideration to these issues.”

    Shi’s prediction of a damaging real estate crash is echoed by many analysts both inside and outside China, such as Chinese economist Cheng Xiaonong. In a recent interview with New Tang Dynasty TV, Cheng commented on how abusive loan granting has accelerated the growth of China’s real estate bubble. Cheng also pointed out that once the public starts to panic as the crash surfaces, the Chinese government would close the banks by force in order to stop a massive cash withdrawal, and as a result paralyze China’s entire financial system. When that happens, Cheng said, no foreign businesses in China would be able to extricate themselves.
  5. taojaxx


    If, as mentioned in th article, this only happens 10 years from now, then we have a nice safety margin...
  6. It is amazing to me that people in Shanghai seem to have truck load of money. When I bought my condo few years ago, there was a long waiting list; I sold it 2 years later for nearly double the price. I have heard of stories of Chinese came to California to buy real estates in cash, some million dollars homes. The good thing about real estates in China is that you pay property tax only at the time of purchase and the amount is small; compared to the US, we pay property tax annually. Considering the scale and modernity of the city, prices are comparable to San Francisco and cheaper than NY. Given a choice, I would prefer to buy in Shanghai than SF or NY. To cool down the market, there is now a 5 year moratorium on sales after you purchase.
  8. S2007S


    December 28, 2009 -- Updated 0345 GMT (1145 HKT)

    Asia's 2010 business outlook

    Asia is leading the recovery of the global economy, but the property market in China is a bubble waiting to pop.

    Economist: "We have seen this in Japan in the
    Hong Kong, China (CNN) -- Asia is leading the recovery of the global economy, but an overheated property market in China is a bubble waiting to pop, a leading economist said.
    "The reason that I'm worried about that is not just property prices are getting high, but we're seeing industrial companies actually speculating the land, which is not healthy," said Dong Tao, chief Asia economist of Credit Suisse, in an interview with CNN.
    "We have seen this in Japan in the 1980's. I certainly hope that China is not going to repeat the mistakes that Japan made 20-30 years ago," Tao added.
    He sees China reining in its lending policies to help drain the massive liquidity in the Chinese market. "China is the first economy to get out of recession, so I think it's natural to see the Chinese Central bank to be probably the first central bank among major economies to tighten (its monetary policy)," Tao said.
    Still, the region has emerged from the global recession much more strongly positioned for 2010 than Western economies.
    "It makes sense because Asian banks haven't really been hurt in this crisis. Asian consumers have very high savings rates, so it's natural to see the Asian economies bouncing back much quicker than the US economy and European economy," he said.
    He sees the export-driven economies of Taiwan, Korea and Japan rebound in the short-term, as manufacturers replenish inventories they let diminish during the downturn.
    "This should mean a pretty strong export recovery over the next few months. But whether this can be sustained, that's a different question," Tao said. "Ultimately, we need to see the consumer in the US and Europe become stronger and that's probably years away."
  9. S2007S


    Mark MacKinnon
    Beijing — From Tuesday's Globe and Mail
    Published on Monday, Dec. 28, 2009 10:35PM EST
    Last updated on Tuesday, Dec. 29, 2009 2:58AM EST
    The young couple had just finished another disappointing round of house hunting when Sun Chun turned to his wife with more bad news. Their real-estate agent had called to say that an apartment they liked had been sold, but not before the price jumped dramatically at the last instant.

    “Are they crazy? How come the price rose so suddenly?” Mr. Sun asked as his wife's eyes widened in disbelief. “Right now, it is still us who are selecting the house. But it won't be long before it is the house selecting us.”

    The trials of a young couple trying to find affordable housing may not sound like gripping television fare, but with real-estate prices spiralling out of control in China, Snail House was a hit when it went on the air in July. The gritty plot – revolving around two sisters trying to establish themselves in a fictional city that looks a lot like Shanghai – hit so close to the bone that Chinese authorities cancelled the show after only 10 episodes. It quickly found a new life online, where some 30 million people have viewed it.

    The runaway popularity of the show highlights a dark undercurrent to what has otherwise been a successful year for the Chinese economy.

    While the world marvels at China's ability to maintain an 8-per-cent growth rate amid a global recession, many ordinary Chinese don't see that translating into the better standards of living they envisioned. Economists, meanwhile, worry that speculation-driven investment is creating an expanding Dubai-style bubble in China's real-estate market.

    The high cost of urban housing has become public issue No. 1 in the world's most populous country in recent months. A recent university graduate recently became an Internet celebrity after pictures were published online of the home she had made for herself in the washroom of the office building where she works. An online poll of more than 10,000 people on the Web portal found that 47 per cent of respondents would have an extramarital affair if it would help them get a big-city apartment.

    Despite a building boom in recent years, real-estate prices in China's crowded cities are increasingly out of reach for most ordinary Chinese. Average housing prices recently hit $2,200 (U.S.) per square metre in Beijing, one-third of the average annual income in the capital, and developers have been reporting record profits even as newly built skyscrapers and vast shopping malls sit partially or completely vacant around the city.

    According to one report by a government think tank, half of the property purchases in Beijing are made by people who live outside the city, and 20 per cent are for investment purposes only, with the buyer having no intention of actually using the property. In Shanghai, prices are even higher, having shot up 60 per cent since last year.

    “In Beijing, about 90 per cent of homes are hardly affordable to ordinary people,” said Yi Xianrong, a member of the Institute of Finance and Banking at the China Academy of Social Sciences. “If the government doesn't adjust its policies, these financial problems will definitely cause social problems. There will be an earthquake in society.”

    Prof. Yi says the government's otherwise successful $586-billion stimulus program has caused “not just one bubble, but many bubbles” in China's real-estate market.

    Last fall, as diving export numbers led to factory closings and mass layoffs, Beijing ordered banks to intervene by massively increasing lending. Loans for real-estate developments jumped 121 per cent in the first six months of this year compared with the same period in 2008, while the amount of land under development rose 15.8 per cent. The total area being developed forms a construction site larger than New York.

    “They're different places and different environments, but Dubai and China have one thing in common: Both are using bank money to hype the prices of real estate and drive them higher,” Prof. Yi said. “Dubai's problems are actually not as serious as those of Beijing and Shanghai. If the government doesn't see this clearly, we're going to have a very big problem.”

    Economists say the worst offenders are often government departments, which raise cash for themselves by selling land to corporations they control at sky-high prices.

    One recent example in Shunyi, a posh suburb on the outskirts of Beijing, saw a residential plot sold for a record $4,300 per square metre. The buyer happened to be a development company owned by the local government, but that didn't stop Shunyi county from recording $740-million in revenue from the sale.

    Although few ordinary Chinese are exposed to the real-estate market – most keep their savings in bank accounts – some look at China's economy and see parallels to Japan's just before the stock and property markets there collapsed 20 years ago.

    The problem is dramatic enough that the usually tame Chinese media have weighed in with a rash of articles uncharacteristically critical of government policy. One pointed out that house prices in Beijing are now higher than in Dubai, despite the fact the latter's population is far wealthier on a per-capita basis. Another said the government had “little excuse” for not taking action to control speculation in the real-estate market.

    “The soaring price of property has become a serious national issue and the economic distortions it gives rise to are affecting the everyday life of the majority,” read a recent editorial in the Global Times, a paper closely affiliated with the ruling Communist Party.

    However, some say the government is unlikely to take measures – such as raising interest rates or tightening lending policies – to curb runaway prices because it sees unemployment as a far bigger danger than a real-estate bubble. The fear that factory closings would lead to unrest among millions of laid-off migrant labourers was cited as one reason that Beijing acted as aggressively as it did in introducing its massive economic stimulus last fall. Now, the same ultra-loose fiscal policy blamed for rising property prices has fuelled a construction boom that is keeping millions of workers employed.

    “[The government is] stuck in a tough position. On one hand, they're worried about non-performing loans and bubbles in real estate and the stock market. On the other hand, they're worried about rising unemployment,” said Michael Pettis, a professor of finance at Beijing University. “The tools that they have to solve one problem are likely to make the other problem worse.”
  10. risky63


    wow.....5year halt on selling. so what happens when selling can resume?
    price chart will look like enrons.
    #10     Dec 30, 2009