Shanghai real estate in HUGE HUGE HUGE bubble

Thanks for the insight newguy. Do you follow RE stocks in HK/Shanghai?

 

real estate in uptown shanghai is like real estate in madison new york...it's not meant to be AFFORDABLE to the average joe. the gov't fail to know that not all real estate is the same...real estate has low end and high end markets. you have section of the city where only millionaires billionaires live and in another middle class, working class, and than rural class.

 

Nope, i have some money in etf50 (the sp500 equivalent on the shanghai exchange) as a long term bet on china, that's about it for equities.

That's just flat out wrong. Example, a 1br in nyc queens suburbs is around 300k, a luxury 2br on park ave in manhattan say 2mil. Now imagine, that same 1br turned to 3mil, and the 2br is 20mil, with salary etc remain the same . Do you think the average joe can still afford the 1br? No. Now change dollar to rmb and nyc to shanghai. And you understand the problem and why government is trying so hard.

What most "expert" analyst dont undertstand is how on earth can the shanghai real estate prices go up so much, given the salary gap. It's quite simple:

1) china has 1.3billion people, us by comparison has 300m. Even if the majority of the population are homeless piss poor, just 10% of the population alone is half of US, now imagine them all trying to buy a place in shanghai....

2) Why shanghai? because it is the crown jewel of china. Wallstreet, hollywood etc..all rolled into 1 city. If you have money in china, you HAVE to own something in shanghai, that's the mentality.

3) So how do all those people get so much money? when the average ANNUAL salary is $5000 (10-20% more for shanghai). Because:
- Entrepreneurship: there's very little taxation/regulations and insane opportunities especially in rural parts of china. Example 1 farmer type guy i met who can barely read, made tens of millions(usd) selling boxes of matches for less than 1 cent. Another who supplies coat hangers to companies like macys etc..did the same. So they all came to shanghai and bought the most expensive apts, and their kids went from barefoot in the mud to driving bmw in canada attending colleges. One of tens of thousands examples.

- Government officials: china has a strict policy now that if any official found stealing/corruption will get shot in the head. But since the govt is so rich now, they dont want the civil servants to continue live in poverty. So free apts/cars(interestingly only audi brand) are given to govt officials based on years/rank of service. Now most of those guys already got a place to live, so they sell the place, and use the money as downpay to buy something in shanghai for their kids.

-Massive relocation: guy with $100 networth lives in some ghetto govt housing for the last 20 years. Now all of sudden, they need to build a magnetic train/highway/luxury condo/you name it, over it. But the guy doesnt want to leave, govt cannot just drag them out even though it's the govt's property, that would risk cause civil unrest and we cant have that now! So what do they do? they throw money at him, 1mil rmb? no? how about 2mil rmb? oh wait you have full grown adult kids/leeches living with you (illegally)? Ok 3mil then to make your kids happy too! No i am not kidding...3mil rmb (400k usd cash) is considered pretty normal. So what does this guy do with 3m rmb? he comes to shanghai and buys a place with a box of cash... Again multiply that examples by orders of magnitude...

None of those above are documented or factored into "average income in china".....

- The highly educated "high income" 9 to 5 white collars that works for western sp500 companies in china. Nowdays they can make 10-20k rmb a month, so they too with frugal saving and a mortgage can afford some cheap shoebox apt in shanghai, and of course they will buy it, afterall no girl and her parents will let you go close without owning a apt....

Now you see where the demand is coming from for shanghai real estate and what the chinese govt is up against. Even though the salary/real estate prices are incomprehensible to most western experts looking in from the outside.

Ok i am done writing, battle net is back up now

Here's some listings in one of the luxury buildings in shanghai for your viewing pleasure (万 = 10,000rmb ~=$1500)
http://shanghai.anjuke.com/v2/community/props/sale/27

http://shanghai.anjuke.com/v2/community/photos/b/27

 

Humans are rationalizing(different from rational). During bubble or otherwise, they will find million reasons to justify their prejudices/views/actions.

 

So another housing bubble is about to burst, I say it doesn't matter because more free handouts are on the way, the global markets might feel a down day or two at most but once more money is printed and the bailout package arrives everything will be peaches and cream again. This past week with the trillion dollar aid package for europe was just a simple example of how easy it is to fix a crisis. One day here the next hour gone. Bring on the bailouts before this bubble bursts because failure is NOT an option any longer.




Is China's Housing Bubble About to Burst?
CNBC.com | May 12, 2010 | 02:06 PM EDT

Lost in the storm around Greece's debt problems, have been reports out of China indicating a slowdown in that country's real estate market.

“As investors focus on Greece, there may be another story just as dangerous taking shape in Asia,” said Nick Chamie, global head of emerging markets research at RBC Capital Markets. “Anecdotal data suggests a correction in Chinese commercial and residential property markets may have already started or it could materialize in the coming months.”

Local media have reported a significant decline in real estate transactions and prices in major markets including Beijing, Shenzen, Shanghai and Guangzhou in recent weeks.

Average daily transactions of apartments in Beijing dropped by 96 percent year-over-year during the three-day May Day holiday—traditionally a busy season for home sales.

And homes yet to be constructed fell 35 percent year-over-year, according to Beijing Real Estate Transaction. Compared with the month before, the decline of homes to be constructed exceeded 80 percent.

If the anecdotal evidence is confirmed by official data in the coming weeks, said Chamie, China’s overheating property market could indeed be seeing a real correction. A spillover of a possible slowdown in China’s housing market into commodities and financial markets should not be underestimated, he said.

“It could have a major negative impact on global markets and especially emerging markets,” Chamie went on to say. “China is essential to much of the optimism that has been rebuilt in the emerging markets.”

This comes at a time when the Chinese stock market is down 25 percent from its peak last August, said Marc Faber of "The Gloom, Boom & Doom Report" on CNBC on Friday.

“A slowdown in the Chinese economy is coming regardless,” Faber said. “We have a bubble in the property market—not in every city to the same extent. That bubble will have to be deflated at some point.”

Meanwhile, Beijing policy makers have already taken aggressive steps to curb the surge in transactions and prices in recent weeks. The government has raised down-payment and deposit rates for second homes from 40 to 50 percent, restricted mortgage lending to those buying a third or more apartments, and tightened developers’ access to bank credit, among other measures.

But fluctuations in housing prices in China are not out of the norm, said Nicholas Consonery, a China analyst at the Eurasia Group. Beijing has played an aggressive role in the country's realty market for some time.

In late 2007, for instance, the government’s tightening of monetary policy dampened housing prices. And in 2008, the country’s massive $586 billion stimulus and eased lending drove prices back up.

“From a policy perspective, it’s just not unexpected that you get a correction,” said Consonery. “You basically have a market that is extremely susceptible to policy risk. Since they liberalized the market in the ‘90s they’ve go this boom and bust cycle. The government basically drives outcomes in the sector.”

 

Shaghai's real estate bubble has been brewing for a while. My overseas Chinese friends made killings flipping flats and I almost went in one deal in 2002.

Trouble is the exorbitant local housing prices are preventing the ordinary people with typical mainland Chinese wages even in big coastal cities from entering the real estate market.

And many flats bought to flip sit vacant for months and there are many completed developments occupied by few families. Reason is that you buy just the "shell" of a house in China. It's basically bare concrete wall inside the flat. You need to lay tiles/carpet, paint the walls, install cabinets, curtain, light fixtures and even toilets. Therefore, most of these flat remain empty rather than being rented out.

My humble prediction is that China may disintegrate into smaller regional power (like what happened to USSR) once the middle class flood the streets in anger and protest once the real estate and stock markets bubbles are deflated.

 

well fuck, the shanghai real estate prices have now continued its increase after the pause. The two small apts i sold end of last year at 650k yuan a pop is now going for 750k yuan and there is no inventory. All the government policy so far (no loan on 2nd home, 30%-50% down payment, very strict lending requirements etc..) have all failed.

I guess the lesson is if the economy is on fire, there is little anyone can do to artificially slow down the property prices. Since the vast middle class in china now has money, and first thing chinese want to do with the money is to own a property...in shanghai.

In response, wen jiabao the premier of china said recently the government will "crush the real estate price with an iron fist". So more and even harsher policies are expected at end of the year after world trade expo 2010 ends. Not quite sure what more they can do without pissing of the population since a lot of people there own real estate now. Guess just wait and see, will be interesting.

 

Well the prices are not coming down.

But the government is about to DROP THE BOMB. Local municipal in shanghai has submitted the proposal to Beijin for approval on imposing a 1-3% annual tax based on sale price.

To illustrate how significant this is, a 7million yuan (~1mil usd) apt in shanghai (pretty common) currently pays about 3000 yuan (~450 usd) a year in property tax. After this policy they will pay anywhere from 70,000 to 210,000 yuan A YEAR!!!!!

Rumors are rampant, some say it's only for properties bought going forward, or non-primary residence. Noone knows for sure except 1-3% taxes are coming.

This is absolutely insane, i guess the chinese government is determined to control the housing prices before they become a real bubble.

This is expected to be announced and pass by April this year.

 

these downtown city condos were built for 'foreign investors'

most local can't afford the condos in downtown shanghai. it's mostly for speculation condo market...just like the stock market....teh condos ar for trading or flipping...you get vacant condos...these real estate investors buy and sell condos like buying and selling stock they don't even go to see the condos and bought and sold like commodities hence no renovations.

china is communist country it has social housing isn't it. housing is free.

 

What's your source on this?
The linked article from today's Xin Hua talks about a rather more limited tax.

Quote:

"Chongqing authorities said this week that the city plans to impose a property tax on high-end housing, including both new and existing homes, with a tax rate estimated at 0.5 to 1.5 percent.

Similarly, Shanghai is likely to introduce a tax in the first quarter on new homes with per capita floor space of more than 70 square meters with the tax rate expected at 0.5 to 0.6 percent. And the tax might be applied gradually to existing homes."


http://news.xinhuanet.com/english2010/china/2011-01/15/c_13691892.htm