[bacon]

Since China is the 2nd largest economy in the world, a pullback in its economy would have global implications. Last Sunday the tv show 60 minutes did a segment on the housing bubble in China. For the members in China who are not able to watch this with youtube restrictions I will give a breakdown below of the major talking points.

The clip discusses how the housing bubble has created ghost cities with miles and miles of empty apartments. Since property prices have always gone up in china and the limits on what Chinese can invest (cant invest abroad and bank investment returns are low) in it has fueled the investment demand. Residential housing is driving upwards of 25% of the current economy. The government has invested some 2 trillion into the construction of new cities over the years at a rate of 12-24 new cities a year most of which are unoccupied. While many Chinese are moving from the country to the city the housing bubble is building up the wrong type of apartments which are completely unaffordable to the poor from the country.

The concern is that If the bubble bursts 50 million construction workers will be unemployed. It would swipe out generations of wealth that have been invested in housing. Even the CEO of the biggest home building company in China believes homes are two expensive and prices are in a bubble. The video cites a statistic that the average apartment in Shanghai costs 45 times the average residents salary.

Since 2011 government has only allowed citizens to purchase 1 home. This caused a pullback in investment demand (causes a pullback in housing prices) which has causing over leveraged developers to go bankrupt. There are fears of a debt crisis as developers have already stopped building on partially constructed buildings as they can no longer service the loans. The government fears social unrest if the bubble bursts as it would wipe out the nest eggs of many Chinese and also leave some 50 million unemployed construction workers.

While not included in the 60 minutes clip it should also be noted that in 2012 cooper demand in China slowed to the lowest level in 15 years. This is a good metric for measuring economic growth as more cooper use generally correlates with a growing economy.
http://www.bloomberg.com/news/2012-08-30...years.html

[T and A Man]

China's ghost cities have been common place studies with Chinese analysts since 2008.

You have to remember however they don't approach economics like we do in the west. They have much greatre long term thinking, with what we would assert as a mercantilist attitude to real assets.

The best way to look at it would be they seem to have a lower discount value for time than we do with a longer term goal, which is basically global hegemony, due to owning everything.

Look at things like Temasek holdings with Singapore with its pretty low return, the building bridges to nowhere in Japan and now what to us looks like excess urbanisation in China.

However the original ghost cities of China in 2008 have been filled for the most part and one could conclude they like to build entire cities outright, then move to urban poor into them afterwards, instead of having a JIT approach to urban development.

No doubt they have ridiculously high price to income ratios as in evidence by 45 times average income, and restrictive urban planning assists with this, much like it did in California and the U.K. Byut you have to remeber, their pursuit is to drag 1.3 billion people into a standard of living like the 900 million who live in North America, Europe, Aus/NZ and Japan.

Our trajectory wasn't a smooth upward one, and theirs won't be either. But they have plenty to build, if they have too many houses, they'll build more railways, dams, roads, etc

[BadWolf]

Wow, thanks for the rundown, I fully expect this thread and forum to be banned by the great wall soon.

The price of homes here is simply outrageous. In my city for a disgustingly small 10sqm2 apartment (if you can call it that) you are looking at 60 to 80,000 dollars. The average wage for a city person is somewhere around the 400 dollar/month mark. A regular apartment 60 square meteres... can not be found for under 250,000 USD. Typically they sell for 600,000 to a million dollars... makes me sick. I earn more than the upper middle class here and it would take me years to save up enough money for an apartment. That should tell you just how much money is currently floating around China. To rent a regular apartment here, its about 2000 RMB a month or 350 dollars. The housing market is out of control. I'm not to worried about the nest eggs for the Chinese because the majority of the good people in the population can't afford to own, alot of them are rich capitalist pricks but the 50 million unemployed workers...yikes.

http://www.chinasmack.com/2013/stories/g...dings.html

http://www.chinasmack.com/2013/pictures/...viral.html

[vinman]

The thing I've really noticed is how China has been buying gold by the metric ton. They are the biggest producer of gold in the world and they don't sell a single ounce, they are holding it all in country.

[jdreise]

Any examination of history shows that markets are cyclical. I'd save some money and be ready to put down cash when the bubble bursts...

[Laner]

Family just sold off their real estate in Shenzen. And they are not alone, a lot of the developers in the boom cities are seeing some clouds on the horizon.

I think we will see another exodus of upper class Chinese hit the west coast of North America in the coming year or two. I especially see it in places in the USA where the real estate market is struggling to make a recovery and is a better buy than a place like Vancouver.

[chinadawg]

The bubble is scary, and its not just affecting residential properties. Since the restriction on purchasing residential properties came in, people have been buying commercial. I was at Galaxy Soho in Beijing this weekend. Occupying a prime piece of central Beijing real estate, around 95% of the complex is sitting empty after most of the units were bought for "buy to sit" investment purposes.

At some point there will be a correction, and when there is its going to crash hard. Property is where Chinese people put their money (they don't trust the banks or stock market, and cannot legally invest out of the country), and any hiccups/scares in the market could easily trigger panic selling. As previously mentioned prices are way overinflated, they have a long way to go in a crash.