Would you believe China?
Shanghai already saw the boom, and the government helped lead to the current bust. But the rest of China is still booming and a commie-led bust is gonna burn many in this game of hot potato.
It's interesting to see this disease spread though throughout the world - China, Canada, Venezuela, ...
Real estate prices in Beijing, Shenzhen, Guangzhou, Shanghai and other cities are currently skyrocketing, while large numbers of newly built apartments lie empty.
This defies the conventional wisdom that property prices are determined by supply and demand.
A number of factors contribute to this, including secret deals between real estate developers and local governments, as well as the entry of overseas speculators to the domestic property market.
Although overseas capital accounts for a rather small portion of total investment in the real estate sector, it plays a disproportionately big role. This is because the price of real estate, which, apart from being one of the basics in people's lives, is regarded as an investment, is largely set by the expectations of the investors, or house buyers. Overseas capital, small in proportion as it is, helps largely drive up the market expectations and, in turn, real estate prices.
This sharply increasing overseas investment in the domestic real estate sector could give rise to property bubbles. Once they have burst, these bubbles could deal a telling blow to the Chinese economy as a whole.
The vast majority of countries ban housing speculation, taking into account that housing is one of the basics on which people's livelihoods rely. Many have enacted laws to limit housing speculators' profits. Among the 187 member economies of the International Monetary Fund, 137 have worked out measures to restrict the entry of overseas capital to their real estate markets.
One of the lessons learned from the 1997 Asian financial crisis demonstrates that giving free rein to the international capital's housing speculation is bound to trigger domestic monetary crises.
August 14, 2006
After the flipper scourge left Miami, Phoenix, San Diego and Vegas, where do you think they went?
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9 comments:
There is so much money parked around the world investors don't know what to do with it all. They can't spend it so they go looking for a return. Why not buy MBS? With the fractional banking system they can leverage their investments the way banks do. Now they are all playing a global high stakes game of "pass the trash", i.e. credit derivatives. Who will blink first? It should be very interesting watching world financial markets over the next decade. I personally don't think anyone knows who owns what, or how much downside risk is involved. Look out below!
Back to work.
foobeca -- same thing here in western Colorady. People from CA buying McMansions on 5-acre lots for $800K to $1.2M because they think it's unbelievably cheap. Then we have the meth-fueled oilfield crowd who are pulling down maybe $80K/yr buying $350K stucco shit boxes thinking they have a great investment. RE prices have doubled since '01 and the local cheerleaders act like it's going to go on like this forever.
They only have to look back to the early '80s to see what happened after the last bust. But of course it's different this time - LOL!
A recent report from a Chinese government related report finds that less than 5 percent of real estate in the mainland is being purchased by foreign buyers (all this despite a string of new measures intended to restrict foreigners from buying property here other than for their own personal inhabitation) - so I'm not so sure that the blame for China's real estate bubble rests primarily on foreign speculators.
The more likely causes are sketchy land deals (the Shanghai government, for instance, recently surmised that over 60% of land deals in that city were not done by the book in some way shape or form, and hence illegal) and rich mainland speculators themselves who had heretofore been buying up entire floors of developments and flipping them for profit.
All of this went unabated for too long, so it's small wonder that we're seeing the signs of a swelling bubble.
To be fair, the government has been announcing a string of anti-speculative measures - but seeing how laws, no matter how good they sound, often don't get enforced in China (rule of law here is still a developing concept), it could be a matter of "too-little-too-late" coupled with a "talk-the-talk, but don't walk-the-walk" scenario in which everbody loses: the government, the local people, AND the investors (both foreign and domestic).
From Beijing, with Love
I wonder how many Chinese Americans are taking some of their bubble gains from the last few years and diversifying into China. I'm friends with a bunch of 20-something Chinese Americans. Almost all of them were flippers pushed into RE by their parents. Almost all of them are underwater. Mix a culture steeped in gambling and a land lust evolved in the physically cramped cities of Hong Kong or Taipei with the cheap credit of America and you've got a recipe for disaster.
:my past chinese american friends are all maxed out, fake it till you make it crowd.
Interesting, my non-USA Chinese friends would always tell me that ethnic Chinese were good at business but I'm yet to see that credo (or stereotype or whatever) to hold true. At most, they're fastidious and hard working but as a group, they don't have a George Soros-like vision on what goes up and down over time. That's where the Jews, Armenians, and American Greeks kick some serious butt.
"Jews, Armenians, and American Greeks"
More model minority crap but in this case... white ones. I guess only whites need be allowed into this country. Isn't that really the hidden agenda?
They went back to Hell where they belong.
Ahh Soo!
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