Any Chineese Real Estate Investors on BP
Contractor · Denver, CO · Member since 2009 · 399 posts · 166 votes
I'm going to preface this post by saying, I'VE NEVER BEEN TO CHINA.
I've read alot from "experts" that say China is building its own Real Estate Bubble. These same "experts" debate whether or not China is in for a hard landing. For those that think China will experience a hard landing, they say that growth will decline from 12% to 6%. Which is still insane if you consider that during the RE boom in the US, growth was at 3% or 4%.
Our government has been doing a wonderful job devaluing the dollar, but I wonder if there was a hard landing in China, would that boost the value of the dollar as people pulled money out of China?
I would be interested to hear from others what their experience is with China and a potential RE bubble.
China its crazy and amazing over there. What you see is a raging bull market among an authoritarian government which has huge interest in maintaining social order and stability. The irony exists when the authoritarian government claims itself to be Communist but sets annual GDP growth targets in the double digits.
Just to be clear the so called Communist Party of China are not communists! They are capitalists! They call themselves Communist because it is the way they can legitimize their rule - through historical legacy of the actual communist revolution where the poor farmers were in fact elevated in the social hierarchy. The only other way they legitimize their rule is through growth, that is through economic performance. The Communist Party will only maintain power if growth continues. Once there is a recession in China as we have seen here in the US, then I do believe there is real trouble. For that reason, betting against China is betting against Beijing's ability to maintain control.
There are problems in its real estate. Property value appreciation is so immense 30% a year - apparently it might come down this year a bit).
What you have now is a PBoC that has been ordered to have a loose but 'appropriately tight' monetary policy which has fueled inflation. Not to mention the artificially weak currency.
The real estate boom is the price paid and they the central governemnt have installed many reforms to try to counter real estate appreciation.
For example, Beijing has issued a decree stating that the minimum down payment requirement for the purchase of a second home will be raised to 60 percent of a property's value, from the previously 50 percent.
They are targeting the stay at home moms have made huge amounts of money flipping condominiums in their spare time. Its actually true that I know many stay at home moms in China have have become very adept at flipping properties (and online forex trading). We are talking about $500-1000+ US dollars per square foot minimum per apartment unit in Shanghai, Beijing, Hong Kong and other major cities. These are properties that only get at most 4 cap incomes. The Chinese word for flip is chao ç‚’ which means to fry. Chao lou is to fry apartments. Real estate you could say is a pasttime for the Chinese. Hong Kong is even more expensive because it has become a tax haven for the chinese in a new type of account called the offshore RMB. There is lots of Chinese inflation going to Hong Kong (Think Chinese buying real estate in Hong Kong), plus the direct peg the HK dollar has with the US dollar means that HK has the exact same inflation and monetary policy as the United States.
The problem with the current market is that you are betting against the Chinese government. These guys will suppress a movement so quickly it barely gets known about. All the interrogation techniques we used in Guantanamo Bay were devised by the Chinese secret police when interrogating/torturing the Falun Gong!
On the other hand there are more and more signs of dissent. There are hundreds of thousands of small protests against the government every year that are often labor disputes that do not receive just treatment. Labor unions are virtually nonexistent in China (so much for being Communist!).
I think in China a lot of people are completely priced out of the market. Many first time home buyers are completely unable to participate as the rich get richer and the poor get poorer. If you can get to the point where you can own that property then you may be unable to get a second one.
The government has had a huge effect in trying to clamp down on leverage and that is having an effect in the real estate market, though many see this as a buying opportunity rather than the beginning of a longterm down trend. The Chinese govt KNOW there is a huge problem and imbalance in their economy but require continued growth to maintain their power. They are actively trying to maintain low inflation, while stimulating growth, while mantaining home values.... But the Communists in Beijing are highly capable so you see the dilemma in betting against them.
My friend and I were thinking about how we would directly short China real estate, which is not recommended because you are literally jumping on top a a grenade. But the thought has crossed my mind...... There are some ETFs out there, Copper used to correlate well but not so much after QE2. Just a few thoughts.