Shanghai real estate in HUGE HUGE HUGE bubble

Check out this quote, one of my favorites, funny thing is he "WAS" a 24 year old nightclub CASHIER, he admits to a bubble but says there is "LOTS of SUPPORT" beneath the bubble. Does anyone yet see whats wrong here, this is the same exact problem that occurs every single damn time their is a bubble, why only a few people recognize it is beyond me, sure this bubble can keep growing and growing but the longer and bigger it grows the bigger the collapse.



"It's definitely a bubble," said Beijing real estate broker Xu Xiangdong, a 24-year-old former nightclub cashier. "But it won't break because there is lots of support beneath the bubble because buying power is really strong."



In China, fear of a real estate bubble



By Steven Mufson
Washington Post Staff Writer
Monday, January 11, 2010

BEIJING -- With property prices soaring in key cities, many investors and bankers worry that China has the next great real estate bubble waiting to be popped.


The Chinese government is worried, too. On Sunday, the nation's cabinet, citing "excessively rising house prices" in some cities, said it will monitor capital flows to "stop overseas speculative funds from jeopardizing China's property market." It also said that any Chinese family buying a second home must make a down payment of at least 40 percent.

For investors, many of the usual bubble warning signs are flashing. Fueled by low interest rates, prices in Shanghai and Beijing doubled in less than four years, then doubled again. Most Chinese home buyers expect that today's high prices will climb even higher tomorrow, so they are stretching to pay prices at the edge of their means or beyond. Brokers say it is common for buyers to falsely inflate income statements for bank loans.

Some economists and bankers fear that they have read this script before. In Japan at the end of the 1980s and in the United States in 2008, residential real estate bubbles ended in big crashes, battered banks and slow recoveries. With China acting as a key engine of global growth, a bursting of the Chinese real estate bubble could be a pop heard round the world.

"It's definitely a bubble," said Beijing real estate broker Xu Xiangdong, a 24-year-old former nightclub cashier. "But it won't break because there is lots of support beneath the bubble because buying power is really strong."


Many economists say there are good reasons for such optimism. Rapid economic growth, rising family incomes, continued migration to the cities, pent-up demand for housing, and a banking system much less exposed to residential mortgages than banks in the United States or Japan could protect China, they say, from a real estate meltdown for years to come.

If not, then development firms and Chinese banks might teeter and construction could slow down, tossing millions of Chinese people out of work. A real estate bust might also shake confidence here just when the world is looking to Chinese consumers to start spending more to bring global trade into better balance.

Arthur Kroeber, a Beijing-based analyst and managing director of Dragonomics, said China's economy is "not even close" to being a bubble like those seen in Japan, which endured more than a decade of sluggish growth after prices retreated, or in the United States, which helped bring about the current sharp global downturn.

"At some point the music will stop," Kroeber said. But he predicted that it would not happen in China for at least 15 years, when urbanization slows.

The bigger real estate problem in China now is access to housing. For many people -- especially the young or people moving to the cities from rural areas -- the dream of owning a home is more and more difficult to attain. The Xinhua news agency quoted Goldman Sachs as saying that housing price increases had outpaced wage hikes by 30 percent in Shanghai and 80 percent in Beijing in recent years.

A popular television soap opera known as "Snail House" depicts two sisters' desperate struggle to buy an ever more unaffordable home. One sister resorts to becoming the mistress of a corrupt, married official to get money for an apartment. Last month, after a broadcast official said the 33-part series was having a "vulgar and negative social impact" and using "sex to woo viewers," viewers lashed out at him on the Internet and accused him of owning multiple luxury homes.

Working out of an east Beijing building decorated with Ionic and Corinthian pedestals, Xu, the real estate broker, has seen apartment prices in the complex double in the past year, to $380 a square foot. Prices had already doubled over the three previous years. Now the sales-agent manager of a Century 21 franchise, his take-home pay is more than four times what he earned as a cashier. But Xu, a vocational school graduate and son of corn farmers in Jilin province, still rents.


Speculation has become common. Wang Zhongwei, a 35-year-old stock market analyst who owns the apartment where he lives, bought two apartments in 2004 for investment purposes. He borrowed from family and friends to meet mortgage payments twice as big as his take-home pay. But in the middle of last year, he sold the apartments for twice what he paid and made $145,000, a fortune here.


"It's much easier than working every day to make money," Wang said. "I work very hard and compete for my so-called career every day, but I don't make that much money from work." In November, he bought two more apartments.

The government has helped pump up the property market by keeping interest rates low, the currency undervalued and the fiscal spigots open. Standards for bank lending have been lax, with lending rising at a 30 percent annual pace in 2009, according to a report by the Los Angeles-based bond investment firm Pimco. Since the government exerted restraint in July, lending has risen at a slower, but still brisk, 15 percent annual rate.

Now top leaders are worried. In a year-end interview with the official Xinhua news agency, Premier Wen Jiabao said that "as the property market is recovering rapidly this year, housing prices in some cities are rising too fast, which deserves great attention of the central government." He vowed to "crack down on illegal moves, including hoarding of land and delaying sales for bigger profits." And he said the government would do more to provide affordable housing.
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Last week, the government also nudged a key interest rate higher.

Still, many economists are sanguine.

"One of the legacies of China's prolonged stagnant growth prior to economic liberalization is an overwhelming shortage of residential property that meets its new living standards," Koyo Ozeki said in a report published by Pimco. "It will likely take a considerable period of time for supply to catch up to demand." That wasn't true in the Japanese or U.S. bubbles.

Ozeki, an executive vice president for Pimco in Tokyo, noted that the total credit for the property sector in China has grown to 40 percent of gross domestic product; in the United States, it hit 80 percent in 2007. For Chinese banks, exposure to real estate is less than 20 percent of assets, much smaller than in the United States. That should reduce the chances of a banking crisis.

In addition, while property prices are soaring in such areas as Beijing and Shanghai, price increases are more modest elsewhere. Government statistics say housing prices nationwide rose only 5.7 percent last year.

Moreover, China's homeowners carry less debt than homeowners abroad and the economy's rapid growth can probably keep incomes rising fast enough to cover mortgage costs. Kroeber said that mortgages issued from 2002 to 2008 equaled only 40 percent of the value of housing sold nationwide.

Liu Renping, a 30-year-old construction engineer originally from the countryside of Inner Mongolia, is typical of many first-time Chinese home buyers. After deciding to get married, he hunted for four months before buying a two-bedroom, 900-square-foot apartment on the northern edge of Beijing last March, even though it won't be completed until this October. He paid $162 per square foot and took out a mortgage out for half the money needed. The other half came from his mother, friends and his savings.

About 30 percent of the couple's pay will cover mortgage payments. "And my salary will increase in the near future. So I don't feel big pressure from my mortgage," Liu said.

Since he bought the apartment, prices in that development have jumped more than 50 percent. "I am lucky to have bought it early," he said. "If the price was this high when I bought the apartment, I wouldn't buy at all because it would have been too expensive and I wouldn't have been able to afford it."

 

seriously, could you please tell us WHAT POINT YOU ARE TRYING TO MAKE, that is actually related to real trading, not chatting, not arguing, but something that gets you into a position??? I simply dont see it.

 

Asia, go have a drink and a steak, or maybe a pork chop. You're taking life just too seriously. Smile dude. We hear what you're saying but human nature being what it is...pessimism will always be abound.

 

this is so ironic. I seem to be the only one on this board and possibly on any trading forum who does not blame GS for every failure in their life and then some and, relating to this, does not pronounce China in the dumpster tomorrow. I am actually extremely optimistic until the point when things actually do start to break apart. You can bet I will have my short positions lined up by then. Until then, however, I enjoy the ride up.

And you bet, my son, that I take my business seriously. Does not mean I dont have a good laugh such as right now. Not that I enjoy others' failures but I cant help but chuckle at imagining those poor souls cursing at their trade entries every time they attempt to short China, Japan, GS, and the rest of the world WHILE we are in a strong up trend.

Happy trading and remember to be on the ride side...instead of trying to predict ;-)

 

who was panicking and selling their 2nd and 3rd homes here in the US at the top of the market? no one and they were probably still trying to buy more; even after the top was in.

not saying the top is in, but waiting for evidence of the kind that you appear to be looking for will make it too late to exit or profit from the downside.

 

that is utter nonsense. The signs were crystal clear soon after the real estate market topped out. The signs were also crystal clear when the Chinese market topped out in October 2007. Signs were also clear right after Lehman dropped out of the game. Sure you never pick the tops with that but thats not anything any successful trader should strive for.

Virtually nobody other than a select few in the US owns or ever owned a second or third home other than weekend cottages. I was referring to the Shanghai market where pretty much 30-50% of apartments that are priced above RMB 30000 per square meter are second or third homes owned by those wealthier than average. How they are financed is an entirely different issue. Apartment price levels for the masses are a far cry from being part of any bubble, overpriced yes, but not hopelessly inflated as some "anal-ysts", sitting somewhere in Manhattan several thousand miles away, claim.

 

Prices still climbing higher and higher, Property prices in China up the FASTEST pace in 18 months.

The bubble is still growing, when it stops is anyone's guess but it will not be good for an economy once it happens.


Bloomberg
China Property Prices Surge, Highlighting Growing Bubble Risk
January 14, 2010, 02:05 AM EST
More From Businessweek


Jan. 14 (Bloomberg) -- China’s property prices rose at the fastest pace in 18 months in December, highlighting the government’s struggle to rein in speculation while maintaining economic growth.

Residential and commercial real-estate prices in 70 cities climbed 7.8 percent from a year earlier, the National Development and Reform Commission said on its Web site today. That topped a 5.7 percent gain in November.

The increases signal the risk that asset bubbles may hamper the recovery of the world’s fastest-growing major economy and stoke discontent among workers unable to afford homes. Premier Wen Jiabao pledged Dec. 27 to stabilize property prices, crack down on speculation and keep housing affordable, adding that tools may include taxes, “differentiated interest rates” and land regulations.

“The government is likely to issue more verbal warnings,” said David Ng, a Hong Kong-based property analyst at Royal Bank of Scotland Plc. “If they really cool the market to the extent that no-one’s buying land, then their 2010 economic growth target will be in jeopardy.”

Shanghai’s benchmark property index rose 0.9 percent as of 2:41 p.m. after doubling last year. The Shanghai Composite Index gained 1.4 percent.

The central bank will raise lenders’ reserve requirements from Jan. 18, seeking to rein in liquidity from record lending without stalling a recovery. China is targeting 8 percent growth in 2010, Industry Minister Li Yizhong said Dec. 21.

Shenzhen’s Jump

Increases reported today were led by an 18.9 percent gain in Shenzhen, highlighting official concern that home costs are excessive in some coastal cities. In Shanghai, new apartments climbed 9.2 percent.

Some luxury property prices in Shanghai doubled last year, Lee Wee Liat, an analyst at Nomura International Hong Kong Ltd., said in an interview today. He cited 100,000 yuan ($14,600) per square meter sales in December at Casa Lakeview, a project developed by Hong Kong billionaire Vincent Lo’s Shui On Land Ltd.

Across the nation, new-home prices rose 9.1 percent from a year earlier after a 6.2 percent increase in November, the NDRC said. Second-hand housing climbed 6.8 percent, following a 5.5 percent gain.

Construction ‘Booming’

Policy makers will let construction “boom” at least through June because exports are weak and consumer spending is insufficient to be the main driver of growth, according to Mark Williams, a London-based economist for Capital Economics Ltd.

Real-estate investment is equivalent to almost 10 percent of economic output, according to Williams.

“External demand remains bleak and the task of expanding domestic demand and restructuring the economy remains challenging,” Zheng Xiaosong, director general of the international department at China’s Ministry of Finance, said in Manila today.

To cool speculation, the government this month reimposed a sales tax on homes sold within five years of their purchase, after cutting the taxable period to two years in January 2009 to bolster market that was then flagging.

China’s cabinet said Jan. 10 that the government would tighten guidance of property lending, counter inflows of speculative capital from abroad and tackle “overly rapid” price gains in some cities. It urged the strict application of a 40 percent down-payment requirement for second homes.

‘Ordinary Housing’

The State Council didn’t raise the requirement or add a property tax after speculation in Chinese media that it might. Housing Minister Jiang Weixin said last week that the government will limit credit for second-home purchases.

“We don’t expect across-the-board tightening because they want people to buy so-called ordinary housing,” Raymond Cheng, a Hong Kong-based analyst at Credit Suisse AG, said before today’s data was released. “The tightening focus will be on the luxury segment and speculative buying.”

Average prices in Beijing, Shanghai and Guangzhou rose as much as 30 percent last year, according to Cheng.

Some local authorities have started to implement a policy allowing the repossession of land that’s been idle for more than two years, part of efforts to stop hoarding by developers expecting price gains.

Evergrande Real Estate Group Ltd., China’s third-biggest developer by market value, said Jan. 5 that it is in negotiations with Guangzhou officials over a site after the government decided to change the land’s use. The company is not a hoarder, Chief Executive Officer Xia Haijun said.

The plot was taken back after the developer left it idle for two years, Hong Kong newspaper Wen Wei Po reported the same day, citing unidentified officials.

 

congratulations:

1) the first 2 sentences of your post are the first real contributions by yourself rather than a lazy copy/paste
2) you are right about your statement, but everyone can see that.

Now, what is your point? Why dont you make your next post a real killer post: Once the market has topped out and the market confirms a correction in housing prices you make your next post, I promise you, that will become your most successful contribution ever!

 

BusinessInsider.com

Why Shanghai Real Estate Is The Most Obvious Bubble Ever


-Property values are rising dramatically.


-Buyers are afraid they'll "Miss the boat".


Borrowers are maxing out all available lines of credit, fearing that they might miss out on this extraordinary opportunity. Luo Yan and her husband took out the maximum amount of money possibe according to China Daily:

Thirty-year-old Luo Yan and her husband raced to complete the purchase of a three-bedroom apartment in Shanghai with the help of an 800,000 yuan ($117,000) mortgage. The amount they borrowed was the maximum they qualified for.

"I am afraid that if we don't do something now, we will certainly miss the boat," Luo said.

Joe Zhou, research head at property consultants Jones Lang LaSalle, said in the following months, "we expect house prices will remain at a high level, bolstered by increasingly strong demand and limited supply."




-Prices are way out of whack compared to global standards.

One clear clue (regarding the rising real estate prices in China) is that the average price-to-income ratio in Beijing has reached 27:1, five times the world average, according to data from the Bureau of Statistics of the Beijing Municipality. In addition, the average price-to-rent ratio neared 500:1 in the city, far above the international alarm threshold of 300:1, which sends out a clear signal that the foundation of the real estate boom is losing stability.


-Incomes can't keep up with rising property values.


Housing price hikes have outpaced income rises by 30 percentage points in Shanghai and 80 percentage points in Beijing. In Beijing, the housing price of per square meter is as much as a resident's seven months' salary on average.


-Lending has been growing like crazy, fueling the bubble.


-China doubters are getting called idiots

-Goldman Sachs is starting to sell too.

The bank just dumped some Shanghai property (Remember, these were the guys who even saw the US housing bubble popping!).



-So it's obvious that there's a bubble. But the problem is...

 

The graph, what am i looking at here?shanghai composite?