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Q: When will the housing bubble burst, and how bad will it be?
Looking for the best time to buy a house in China. We want a stomping grounds. When do you think the housing bubble will fatally burst, and do you think it would be a good time to buy?
I dont think it will. I know everyone wants it to including me. But everyone forgets that China is like that retarded neighbour you had as a kid that didnt play by any of the rules that everyone else played by. In rock paper scissors he had a bomb..... EVERY FUCKING TIME!.
They do what they want. The housing market is slowing and prices have mostly stagnated. But China doesnt want it to drop too much really, and untill Chinese start trusting banks they are going to keep pumping money into real estate. Developers see this downturn coming a mile away and many new projects have been halted for the time being.
Waiting for prices to cut in half is a fools errand. My guess is in the next 2-3 years prices will be around the same as now, or marginally higher.
But I really hope im wrong and you can snatch something up for cheap. Ill be buying right beside you!
I think China`s housing bubble will burst in certain cities with super sky high prices but overall, I don`t think it will burst. In my city, the price is still reasonable at only like
4000-6000 RMB per square meter. Sure you only get a concrete box but they are putting a lot more effort into the residential area itself. The apartment I am buying has a pretty nice outdoors area with a pond, walk way, many parks and no cars allowed (can only park your car in the underground parking) for safety of children.
It`s a reasonable price and I think like Mike says, in some areas the price will stay the same, some, it will come down a little and others (smaller towns and cities.. possibly developing larger cities) it may rise considerably.
As long as Chinese are brain-washed into thinking that owning 5-10 apartments will secure them a future... they will keep buying. Some of them are starting to realize that JUST buying apartments is not a smart investment as they are built to last 30-60 years (depending on quality).
Chinese are starting to heavily invest in other areas, such as:
- foreign property (especially near beaches, Philippines and Thailand are going to be eaten up in about 10-20 years)
- gold and other valuable materials
- art
- start-up technology
Burak43:
Just hope they will stay away from classic cars. Price on classic cars are really high already as people realize they're a good investment.
Scandinavian:
Don't worry, most Chinese don't actually want something old, the classic car market is much more difficult than going out and investing in a Van Gogh
xinyuren:
Yeah, they have to research, store, and <gasp> maintain! classic cars. Definitely out of the question for the Chinese.
andy74rc:
Speaking of classic cars, like many of the good things in the world, luckily are not appreciated here. And speaking of classic cars, thanks God. There are already too many pearls in pigs hands with the new ones!
Lord_hanson:
The problem with the outside area is the Chinese. Underground parking? Why pay for that when I can just park anywhere I want. Nice green spaces, no thank you. I will dig up the grass and make a little farm. Keep some chickens there too.
The "problem" with a bubble bursting is
1) It is likely to not be country wide. Regional differences are so large that it can easily happen in only one area at a time
2) The Chinese property market, although it seems like all there is, is only about 15% of the economy
3) A full on burst would perhaps lower the financial growth by 1%
A thing that is VERY important when discussing property is, square meter per person. China already has more square meters of property, that is, the buildings standing, not the projcted ones, than Europe. But China also has hundreds of millions living in poverty in small sheds. There is far far too many square meters of residential real estate in China to sustain a market. It will go bust at some point.
</tinfoil hat>
An intersting thing one could conspire about. Maybe the bubble has already burst. BUT, most (or maybe all) property developers are partly state owned, so effectivly the state could keep the prices up, by not letting new buildings get sold at a cheaper rate. The rules and regulations they operate under, means they likely don't care if not all is sold, or more to the fact, they desperately don't want to sell too much of each project, as then they need to pay tax from the income (they can sell a big portion without paying tax)
<tinfoil hat>
xinyuren:
This last point is a good one. Since most companies are state owned and subjected to government manipulation, a bubble bursting could be partially hidden. What we see now could be completely artificial. Hmmm.
Robk:
Last point is quite possible.
They can just hide it from the people that nobody is buying at the moment. The labour is cheap, the materials are cheap... they (real estate companies/government) could keep building for 10-20 years without selling a single apartment to keep up appearances and still have a fortune and nobody would be the wiser.
RiriRiri:
I don't think this is a crazy theory at all. This is what I was suspecting too.
@ Rob, you're right as well, and yes, nobody is buying at the moment in certain areas, like the faraway suburbs of bigger cities (which is where a bubble was the most likely to start), the press is starting to notice it and some articles/forums even start suggesting the supreme blasphemy that renting isn't such a bad idea.
That leads me to agree with mike's statement that it might not burst with the violence we would expect and that a drastic drop is unlikely. We'll rather see the stupidest projects find no buyers, even speculative investments, as people might be finally starting to realize that a series of blocks of concrete in the middle of nowhere will not suddenly become a lively neighborhood.
Scandinavian:
As long as there is sufficient income from exporting cheap crap to the west, then it is better to hide a bubble bursting, at least if your motive for a stable economy is to avoid loosing power rather than anything else.
andy74rc:
@Robk: most part of the buildings they build won't last 20 years without any major recostruction. In my garden even 10mil RMB single villas built only 10 years ago go through a major stripping to the bones and rebuildig for people who decide to move in, and same for the ones lived from day 1.
Robk:
@andy - then they got hardcore cheated. My wife's father built a villa (more like one of those hu tong type of homes you find in the old part of Beijing) but used decent materials in a small village.
He paid about 200 000 RMB at the time... which was 20+ years ago and it is still in good shape. I guess it really depends and is the luck of the draw.
I have seen some houses that have been standing for 70+ years that aren't in horrible shape... they look like they could use a face lift but not totalled.
Scandinavian:
yeah, I am with Andy on this. Our high end community, all the park area, which is nice, is in serious need of reconstruction, parts of the community is about 10 years old, our section is from 2009, there are problems such as, the entire foundation of buildings sinking, and stuff made out of wood is rotting. In the older parts, everything has been through at least one major renovation.
andy74rc:
Rob: sure, but that's the case of one house built by an individual. What we see around and that constitute the problem we're discussing are the apartments in thousands of gardens built in shit and sold for a premium by the connected real estate developers.
Basically, as I already said in the past, the top of the line in turd polishing
My friends an analyst at a REIT, word from him is that new home sales have pretty much petered out in a lot of markets.
an issue now is that home that have been pre-sold (purchased prior to construction) are now on indefinite hold as the developers just can't secure funding from the banks who don't want to lend. Capital is tied up with no construction forthcoming.
For now the government is ordering the banks to lend money to the developers, so that'll prop things up for the time being.
A housing bust by itself might not move the needle on GDP much, but the problem is that it creates SO many busywork jobs for the rural folk. All those construction jobs get lost...these migrants that have sold their farm plots aren't going to have anything to do. They're a huge liability.
Current situation says that 25% of the residential and commercial properties nationwide are empty and in major cities there a 20-30% reduction in sales y-o-y, but prices are at the moment basically stable.
I also do not think any real bubble will burst. Construction sector and housing market is too important in terms of stability and directly controlled by the govt.
I'd say they might just sustain the prices at the current level and let the inflation rate act as a price deflationary tool.
Chinese Real Estate Sales Could Dive In Third Quarter
In order to meet target sales, Chinese real estate developers
may be forced to take deeper price cuts.
As of early May, Beijing had an inventory of more than
70,000 new commodity houses, Shanghai 65,987.
That was a total of 10.26 million square meters of area,
a new record high.
Inventory in Shenzhen was also high, more than 50,000.
Many Chinese property developers achieved less than 30%
of their target sales in the first five months.
China’s revenues from property sales dropped 8.5% in the first
five months year on year, said the National Bureau of Statistics
on Friday.
Professor Wang Jianguo of Guanghua School of Management,
Peking University, indicates the real estate market is down
due to a lack of demand.
Wang Jianguo: “There are only immediate demands by mostly
lower income people.
They typically won’t be able to afford higher price housing.
As I know well, people used to call me and ask if there’s
any house for sale. Now, they ask if there’s a need for housing.”
The property sale prices have also continued to fall.
Between January and May, the average sale prices
of commercial and residential have dropped year on year,
by 0.7% and 1.2%, respectively.
According to 100 City Price Index Report, the average
residential houses prices of 100 cities have dropped month
on month for the first time, by 0.32%.
One of China’s top ten real estate companies, Evergrande Real
Estate, announced a 15 percent price cut early last month.
Reuters analyzed, Chinese property developers may be forced
to embrace steeper price cuts, broader promotions or a change
in strategy in the third quarter as they scramble to meet
2014 sales targets.
Economic commentator Niu Dao predicts the first guillotine’
may take effect this September targeting the first-tier cities.
Niu Dao: “This bubble is too big. The bubble exists in every
city in China. It won’t target one particular city.
It is a problem of currency.
Too much money printing has ended up in real estate,
and brought up the prices of real estate.
Now that these funds are fleeing, the property has to be sold.
But no one will buy it, because everyone is cutting prices.
When the yuan was good, people rushed into real estate
expecting prices to go up.
Now with the yuan down, many people quit the real estate
market. Property prices are sure to fall.”
Before, the Chinese Central Bank had required timely
approval and issuance of housing loans to all commercial banks,
real estate funding sources continue to experience slow growth.
The year on year decline in deposits and prepayments continues.
For the first 5 months this year, total funding for property
development was more than 4.6 trillion yuan, an increase
of 3.6% from last year, however, the growth rate continued
to fall.
In which, apparent growth was seen in domestic lending
and self-financing, while foreign investment declined sharply
year on year.
At present, many developers try to attract buyers with
promotions such as free remodeling and free parking space.
China’s largest private property developer, Greentown China,
launched a new round of promotion.
A total of 30 billion yuan of coupons good for the next purchase
will be distributed to existing customers.
Wang Lan, Xi’an citizen:There was a piece of open area
for affordable housing.
The construction will not be ready until next year.
But they have already started with a booth distributing flyers
stating any locals are qualified to purchase.
Proven documents are needed, of course, but, it’s just a
formality. They can help you to get approval.
Ms. Wang reveals that the affordable housing is part of the
state welfare.
In the past, even qualified buyers needed to go through
connections to apply.
This large promotion is to her an indication of falling prices.
http://www.bannedbook.org/bnews/cbnews/ntdnews/20140619/267203.html
hasnt it already happened in that place inner mongolia? most of the public lost out cos they invested their own money, and that city is meant to be the riches place in china in terms of per capita gdp and only about half of the projects are finished so even people who bought apartments are left with nothing, anyways you should check out rthk the pulse they done a whole story on it
It will ruin the Chinese middle class because their assets are mostly in real estate and not in banks or in various other investments. It will explode when the local governments won't want to or won't be able to back up the unprofitable projects anymore with public funds.
Hey ~ I'm not sure about the economics of a real estate 'bubble burst' in China, so many facts/figures are hidden here, but what I have noted is:
!) I live in Qingdao, and there are multiple apartment building complexes in all areas, with many apartments largely empty. I was always taught in basic Economics at school (many years ago) that an oversupply lead to cheaper prices. Obviously not here..
2) the contruction is absolutely crap, they make look good, but cheap materials/labour employed, meaning in a few years/months everything starts falling apart.
3) there's never seems to be any provision for carparking in these premises, so you have all 'wanna bes' parking on footpaths etc Such a pain in the a#*se..
4)according to Chinese Law, the building/apart can be confisticated after 70 yrs! So in fact, you don't really own anything..
So why are the prices so damn high here. I don't get it?!
DrMonkey:
Same observation in all Chinese cities I stayed for a little while. Part of the explanation about those prices not going down... For many relatively rich Chinese, the options to invest without much risks are limited. Banks account interest are around 2%, at most 5%, when the inflation is at least 7%. The Chinese stock market is way too crooked to be a good investment. Foreign assets are for the really rich. So, people buy several flats and keep them empty. For example, I know a boss who park his employee in his empty flats, it's all bare inside... The flat's value is it's expected value in a few years. Accommodation price went up since 2 decades, so people feel safe about that kind of investment. But if the supply is massively over the demand, of course, those flats will loose values, and a lot of people will see their savings vaporized, owning empty hulks without a future.
Scandinavian:
We actually have decent amount of car park under the buildings.... mainly because not all apartments are occupied. There are some villas that have 2 spots included in the price but all regular apartments parking is an add on, and there are NO extras spots for guests, and oddly the city of Zhuhai has gone crazy writing parking tickets. I guess it is a good source of income
