The Sanya Real Estate Review III
Indeed what a fast-moving beast it is. The speed of the rise is your first clue of danger because real estate markets by their nature do not move fast. A home is NOT a casino craps table! Here's another story of a recent visit to one of Sanya's very well done new property developments along the Sanya river area called San Yong Milky Way:
Me: Hi, in February nine months earlier, the price of an apartment here was 6000rmb/psqm. That's reasonable and I'd like to buy one today at that price or maybe up to 7000rmb/psqm. Here's my cash on the table, let's do the paperwork, ok?"
Sales Agent: "Bu Keneng!! (that means "impossible") The price we are asking today is 9000rmb/psqm. Prices are going up all over China and you had better buy quickly at this price because if you don't, you will lose out!!"
Me: Oh my God! Honey, he's right. We had better buy now!
Rinse - Repeat - Ad Nauseum
A few paragraphs further up I told you that there is a Ban Shan Ban Dao Phase I luxury apartment available for sale today for 13,000 psqm. That price INCLUDES the luxury level decoration with granite floors, Corian counters, very expensive door/window frames and other upgrades. The price is only slightly higher than what the owner paid TWO YEARS AGO. Ok, we can easily understand the seller is motivated. So then if the seller is NOT motivated, what is a reasonable price? Perhaps we can suggest 15,000-16,000-17,000psqm is a fair market price? Great, then the apartments next door at 28,000rmb are what? Also a great deal? Standing at the location, I can't find the advantage, especially after being told the Building #3 and #4 oceanview is going to be blocked! Back in the United States where markets have transparency, we could pull the comps of every sale in the area to compare sale prices. The result, we would not see such huge price discrepancies on properties which are very similar.
The 9000rmb/psqm price of apartments along the river does NOT include the decoration. Does a mere 4000rmb/psqm price difference between these two apartments sound reasonable? Surely one easily realizes the Lu Hui Tou luxury level neighborhood is far superior to any location in Sanya city. The exclusivity of the peninsula neighborhood with its golf course and international resorts is not in question. So then the 13,000rmb psqm Phase I unit at Ban Shan Ban Dao which includes the upgrade level decoration is an absolute steal compared to a 9000rmb/psqm apartment not including decoration along the river.
Dadonghai Beach - Future Value Why Wait?
According to my friend and Dadonghai real estate agent Mr. Liu, the Dadonghai property market is easy to summarize - 20,000rmb psqm is the asking price for EVERYTHING. Owners in the crappy OLD apartment buildings that should be demolished are asking 15,000rmb/psqm. It gets better. Right now, Dadonghai central is a construction zone disaster area and will remain so for two more years as there are two large resort projects being built at the main intersection of Hai Hua Lu Hai Yun Lu one block up from the beachfront.
So the consensus wisely says "When these projects are finally finished, the current apartment price range of 12 to 18,000rmb/psqm will most likely go up to the 20 to 30,000rmb psqm range." You know what? Let's agree that might be true. But then the clever homeowners and real estate agents get extra cute, making a mockery of the current stock market "forward PE" ratios and relaxed mark to market accounting rules being used. They think to themselves,
"Hey if the the neighborhood is a bloody construction mess right now but the price is going to be 25 to 30,000rmb after these projects are finished around two years later, then we declare that's the price right now! Why should we take less today?"
This is the same as saying that your apartment is NOT in fact for sale right now unless you get a visit from the Godfather with an offer you can't refuse such as 30-50% over current market price because the buyer believes there is a hidden diamond mine under the building. Instead, the neighborhood is chanting together in their hallucinogenic frenzy that the prices are NOW 30,000rmb and the fools start to believe it!
In my corporate workshops on communication, persuasion, PR and media skills we spend alot of time talking about the use of language, beliefs, persuasion, expectation and priming. All of these psychological factor come into play and influence such speculative irrational frenzies.
According to a husband and wife we met yesterday at Ban Shan Ban Dao, 28,000psqm for a unit in Phase III is a great deal because on Sanya Bay, that is also the asking price at various new apartment complexes including the Lu Neng development. 28,000rmb/psqm on Sanya Bay where the murky water mostly looks like something you'd rather not swim in? Last year, you could buy a complete hotel room at the gorgeous new Howard Johnson's Resort for around 12,000rmb/psqm. Does this make sense? So everyone is unreasonable, and that means everyone unreasonable is normal and normal is accepted as the new normal. Oh my.
Summary of the Lunacy In The Sanya Real Estate Market Bubble
1. At Lu Hui Tou Peninsula's Ban Shan Ban Dao
FOUR HUNDRED SEVENTY THOUSAND USD$ FOR A 110 SQM LUXURY OCEANVIEW CONDO APARTMENT - ONE OF 2200 other essentially identical condo apartments next door. Asking price 25-31,000rmb/psqm
2. Other oceanfront apartments along Sanya Bay & Dadonghai
20,000rmb psqm minimum for lower units
(Sanya Bay's Luneng, Dadonghai's Rui Hai, Lan Hai & Jin Ling)
30,000rmb psqm minimum for upper units
(Sanya Bay's Luneng, Dadonghai's Rui Hai, Lan Hai & Jin Ling)
3. Sanya city local river front apartments between Times Coast and Phoenix Water Town.
ONE HUNDRED FIFTY THOUSAND USD$ FOR AN 110 SQM RIVER VIEW CONDO APARTMENT in a fishing village city where there is virtually nothing else going on business wise outside of tourism. Avg price: 9000rmb/psqm.
4. Yalong Bay and Haitang Bay Luxury Resort/Golf Apartments
30 to 50,000rmb per square meter. Enough said. I must be in Tokyo Hong Kong, Singapore lah, eh? Ah, I got it! Star Trek! Scotty beamed me up!
Finally, there are two penthouse units at Ban Shan Ban Dao for saleThey are both very close to 240sqm. One owner is asking 22,000rmb/psqm. The other owner is asking 30,000rmb/psqm. The units are IDENTICAL AND IN THE SAME BUILDING of Phase II.
And so I end this tale of lunacy and treachery by reminding you that there are many wonderful reasons to like Sanya. She is a place that is good to many of us and as the founder of SanyaExpat I really wish that Sanya will be good to you too. Please come enjoy our lovely tropical paradise. Our great beaches and warm temperatures, our $2 ice cold beer at the beach and really good, low priced and reasonable local restaurants and bars. And our fancy luxury resorts too. They will pamper you to heaven.
But if you're thinking of buying your winter home at current prices, you have been warned. Yes it is absolutely true that these markets are being fed by unprecedented amounts of liquidity flowing into the market comprised of both private and government funding. This is not a factor to be ignored, as following government spending commitments on infrastructure and other economic stimulus programs is a wise investment strategy. If you are really rich simply wishing to buy your three million rmb luxury winter 1100sqm beach apartment in Sanya, you are very fortunate to be able to afford it. Just don't do it thinking it is a fabulous investment. In August, after peaking at a 100% increase since March, the Shanghai stock market index corrected back down over 30%. A currency crisis and related risks looms over the globe. Even though I am the first to tout China's strength because of the massive amounts of cash here, we are not so magnificently isolated from the rest of the world just yet. The same could easily happen with property prices. The super rich and cash liquid won't have their lifestyles ruined or even dented by such fluctuations. so my warning is to those of us who are not super rich and therefore need to be much more careful about preserving our capital. Warren Buffet #1 rule of investing is to never take a loss. Wise indeed.
Answer these three quick questions:
1. YES or NO - If you had several million rmb cash in your bank account, would you buy this luxury condo apt today at this price? Since the buildings, I am told, are 90% sold out AT THESE PRICES, we want your opinion.
2. YES or NO - Do you believe that in three years the price of this condo apt will be the same, higher or lower?
3. Do you believe that sometime in the next 6 to 24 months there will be another financial crisis or some sort including a bursting of this real estate property price bubble in Sanya?
The deadline to reply is NOW. After 30 days, We will tally the results of your answers and post the results.
Investment/Real Estate Analyst & SanyaExpat founder Mario Cavolo Declares a Dangerous Bubble: The Sanya Real Estate Review: 3rd Qrtr 2009