patrick.net

The price-to-rent ratio in Beijing is on the order of 400-450. That is a pretty good indicator of an insane bubble, right there.

(price-to-monthly rent, not yearly rent)

It should be interesting to see how they handle their impending bubble. They do have some safe guards, if you want to speculate and buy a second property you must have 40% down. If people can afford their current loans, then the bubble might burst, but those people could still be on the hook and still actually afford the mortgages.

Here, the bubble burst and mortgages reset on people who couldn't do anything but default.

Do you get shot in China if you can't repay your debts?

Also I imagine China does not have the same bankruptcy laws as us.

This is what happens with a 0% property tax, LOL.

Plus of course incomes are going to rise from here on out for China, making real estate a lock in a private economy with few other investment options.

Beijingers throwing 50-70% of take-home pay into land just illustrates my argument that land is the source, and the sink, of all wealth.

Wanna get rich . . . buy land.

And to think Mao used to shoot the petty bourgeois land lord class. Looks like the pigs have learned to walk again.

You know how we all question the NAR and the Govt. statistics about housing? We read articles where people dig deeper and call BS on that data.

In China you can go to jail if you publish articles accusing the Govt of lying and manipulating data. So I don't expect to know if there is or isn't a housing bubble there. And I do expect it to be covered up if there is one.

thomhall,

You are repeating all the same stupid ideas as those who said that US housing was not in a bubble. The bottom line is that income is still very low in China for nearly all of the population. Very few people can afford these homes. Banks are giving loans to anyone with a pulse (sound familiar?). This "incentive to default" is a false argument. Very few people in the US defaulted on purpose. Nearly everyone defaults because they can no longer afford the loan. This will happen to many Chinese. Yes, the nearly zero carrying costs will mean it will take longer but it will catch up with them just like it did in the US.

Let me repeat, "It is NOT different there."

thomhall,

>> 1) Demand is very high. They have 1.3 billion people who want to own homes.

This is very suspect. By some counts, 80% of households in china already own their residence. That's higher than just about anywhere. Look it up.

Here is another link with some price increase data

http://dailycapitalist.com/2010/01/27/chinas-housing-bubble/

Finally, price/income is 27:1 in Beijing. That is utterly in the stratosphere. There is NO way this is going to end well.

http://seekingalpha.com/article/183021-beijing-s-bubblicious-prices-27-1-apartment-to-average-income-value

Simple economics. Any economy that is that fuelled by credit frenzy should be fine. :)

It might not end as badly as we might expect though. With little/no property taxes, and very low income taxes, more can be spent on mortgages. With the staggering increase in wealth over there, these properties might become very "affordable" to the buyer within just a few years, as their incomes shoot up as well.

At the very least, when a bubble potentially breaks, the government only needs to do a few tricks to keep people in their homes for a couple of years while wage increases take care of balancing things out.

pkennedy,

I think it will end every bit as badly as here, or worse.

Have you been to China and seen all the empty buildings? It is downright frightening.

My prediction is that the entire trade surplus of China will sink into a giant rathole of a housing bust.

When I read Chinese banks lent out 25% of their total GDP in just the first 4 months of 2009, I figured China was doomed. Now that our owners came back from China looking "white as ghosts" after visiting our factory, I know for sure the that country is doomed!

pkennedy says

It might not end as badly as we might expect though. With little/no property taxes, and very low income taxes, more can be spent on mortgages. With the staggering increase in wealth over there, these properties might become very “affordable” to the buyer within just a few years, as their incomes shoot up as well.
At the very least, when a bubble potentially breaks, the government only needs to do a few tricks to keep people in their homes for a couple of years while wage increases take care of balancing things out.

This is quite true if it were western country.

It is china, and the problem is that only 5 million out of 1.5 Billion chinese is able to play $400K+ real estate game. The rest of chinese is piss poor, has nothing to do with this even in their wildest dream. It is like there are two different worlds in one country. This bubble is a fatcats fest of their own b/w city dwelling professionals, members of commy party and business people under protection of commies. There is no such a thing like even out or wage balaning for 95% of chinese who's live in underdeveloped rural area.

So, what does this could do to our economy when the bubble bursts? What do you think will be happen to Trillions of US bonds held by china?

Really, the chinese are working on integrating more and more of their population into the urban environment. So perhaps only 5M are in position to buy today, but that number is probably growing by leaps and bounds every year as more and more people are slowly put into white collar positions, with enough savings to make these purchases.

I'm sure the bubble bursting will be horrific, but with so much going on in the country, they will probably just plow right through the issues and keep growing.

If china collapses holding trillions in US dollars, it will likely prop up the US dollar, as those dollars will be spent by the chinese, or hoarded by the people who can hoard, hoping to avoid the massive problems of their country.

2 Trillion / 1 Billion = 2000.

That's right. On the average, a chinese citizen holds a grand total of $2000 of US debt, give or take a few.

>> Anyone can tell how Housing bubble in China Crash or Not will affect the R.E. market in Bay Area?

Uh, Tomrisk. Look around the world and see what immense damage OUR *US* housing bubble did to everyone. That ought to give you the answer right there.

I think our housing bubble caused other nations to look at their land in the same ways. Other nations were buying our securities.

Those are the major differences. The chinese aren't reselling those securities back at us, or anyone else. They aren't causing others to go on a land buying spree in their native countries.

More on the impending Chinese Housing Crash:

Nonperforming Loans in China Rise to "Trillions of Renminbi"

http://globaleconomicanalysis.blogspot.com/2010/02/nonperforming-loans-in-china-rise-to.html

So.... NOW is the time to buy in China?

Well, perhaps not quite :). The crash hasn't taken place yet. Banks are hiding the non-performing loans, just like banks do here.

I heard from someone in China that banks cannot or will not evict homedebtors unless they have another place to live. Sounds crazy, but my source was adamant this is true.

A form of "Squatters rights" exists also in California (and perhaps other states).

It is called "adverse possession". The squatter *must* also pay the property tax, and the owner must not pay. after 4 years, I think, you can get a judgement that you own the property.

There are some additional details, the possession must be blatantly obvious, something like that.

Another skeptical view of China, this time regarding Commercial Real Estate.

http://www.bloomberg.com/apps/news?pid=20601109&sid=a6i2PSZD.Jr4&pos=11

thomhall says

Hey Grywlfb,
Have you ever been to China? Have you ever purchased real estate there?

I have been to China several times but do not want to live there. My point was that your post listed all the same points that US bulls were making in 2005 and they turned out to be false. As the others have said there are still very few people in China (compared to the size of population) that can afford these prices.

Also, people aren't living in these places - it is pure speculation. What are the people going to do with all these places they've bought? They're not living in them and they can't rent them out for anywhere near the cost of capital. These are all the same things that happened in the US.

A quote from The Automatic Earth:

China has become the world's biggest creditor, after amassing nearly $2.3 trillion of foreign exchange claims on us. However, the spectre of a creditor nation running persistent trade surpluses has ominous historical portents. It has happened only twice before, with the US economy in the Twenties and with the Japanese economy in the Eighties.

China's export markets are shrinking and their domestic markets are not growing fast enough. Something will have to give.

thomhall says

Chinese real estate will not crash for another 10 years:
1) Demand is very high. They have 1.3 billion people who want to own homes.
2) The economy is growing at 10% per year.
3) They have wanted to purchase property for half a century. They saved for this event in their history, so once they purchase they will not sell even if there is an economic slow down.
4) They are big savers.
5) They put down 30-40% on apartments. So bigger incentive to not default.
6) Chinese think long term.
7) The Chinese have lots of money from exports.
There are many more US$ millionaires in China than in the US.
9) No property tax.
10) Chinese are now capitalists.
11) Property is key to wealth and they know it.
12) High inflation.

LOL ! didnt "they" say the same about California back a few years ago!

The last three links on Friday's housing crash page point out why the housing bubble simply didn't exist.

"As someone who makes his living in residential real estate and is involved in the sale of more than 5,000 residential properties each year, I am convinced the housing bubble is a myth and that any time is a great time to buy or sell a home.

My belief is not simply based on personal business gain. Rather, it is based on logic, facts and years of experience.

The theory is controversial, makes for great press and is an interesting topic for discussion but, in my opinion, there is absolutely no validity to it."

This was a quote from an article written by David Barnes, Realwhore extraordinaire, in December 2005. Wonder if he's still involved in 5,000 sales this year.

Hey Elliemae... dont you just wanna go ballistic on these creeps!

Enemies of our republic they are.

Political stability is just a Black Swan or two away from no longer being taken for granted.

thomas.wong1986 says

Hey Elliemae… dont you just wanna go ballistic on these creeps!

No, I'm just grateful that no one is blaming the Chinese housing bubble on my being a liberal. :)

Seriously, a friend & I were discussing housing prices here in Utah. Even though they're not as outrageous as California, they've dropped by at least 30%. And with all the short sales, it's amazing that people are having trouble getting offers accepted here too.

Seems like the only people who made any money (and continue to do so) are those who had a ton to begin with. A builder friend of mine lost everything - 3 spec houses including one that was a million plus dollars - that's at least 4 million to compare to Bay area prices - and put 20 people out of work. He lives in a rental now and works maybe 20% of the time. Blew through his savings in 1-1/2 years. It's awful to see what he's gone through, yet he remains upbeat. I don't know how.

elliemae says

one that was a million plus dollars - that’s at least 4 million to compare to Bay area prices -

$4M or $1M, such prices are not sustainable not even in the Bay Area in mass numbers.

elliemae says

No, I’m just grateful that no one is blaming the Chinese housing bubble on my being a liberal.

Where's Bap33? I'm pretty sure he'll tell you......

LIBERALS ARE JUST FELLOW TRAVELERS OF THE CHI-COMS!

The only China has going for it are a lot of people with very low expectations. You've got some pretty desperate brothers buying some really overpriced condos just so they can get a little action away from their mother. If China lets the dollar crash it will be an end-run revaluation for their currency. How long before we can make our own TVs again? Clothes? No problem.

Everything they make for us, they have to buy first. That's pretty scary.