In Southern California from living there all my life (until coming to China) I have a fair gauge of when property values are over valued or under valued by using tools such as rent/purchase price, mortgage/purchase price, income/purchase price......or just gut feeling.

Just wondering what methods do you use to justify if it is worth purchasing a property in China. Met a German couple on a trip in T1bet and they were saying how there it takes a 40 years (of renting/mortgage) they said to pay off/purchase a home them while in the US I think it is about half that time (even less now). Just wondering what is the historic measurements you should use in China.

http://www.nytimes.com/interactive/busi ... lator.html (for USA)

renting = mortgage

I pay less than 8000 rmb for rent. The value is 5 million. So it would take me 53 years of rent to pay for my apartment (assuming no increase in rent). In England a studio apartment in central London costs around 250,000 pounds and you can rent it for 1,300 per month. It would take 16 years to cover the purchase cost. 16 years in England vs 53 years in Shanghai!

chingiskhan wrote:I pay less than 8000 rmb for rent. The value is 5 million. So it would take me 53 years of rent to pay for my apartment (assuming no increase in rent). In England a studio apartment in central London costs around 250,000 pounds and you can rent it for 1,300 per month. It would take 16 years to cover the purchase cost. 16 years in England vs 53 years in Shanghai!

Thanks for the calculation. We were thinking to buy something here, but when we look at the big picture, i don't think it's a good idea. Your post confirmed it. I think also, house price in Shanghai has reach its peak, so will be difficult to make money on the house.

Well this is widely debated and opinion is divided between those that say the prices will just keep going up and others who say it will all collapse eventually. So take your pick!

things missing

average annual inflation rate
average annual % home price increase
average annual % rent price increase

highlander wrote:In Southern California from living there all my life (until coming to China) I have a fair gauge of when property values are over valued or under valued by using tools such as rent/purchase price, mortgage/purchase price, income/purchase price......or just gut feeling.

Just wondering what methods do you use to justify if it is worth purchasing a property in China. Met a German couple on a trip in T1bet and they were saying how there it takes a 40 years (of renting/mortgage) they said to pay off/purchase a home them while in the US I think it is about half that time (even less now). Just wondering what is the historic measurements you should use in China.

http://www.nytimes.com/interactive/busi ... lator.html (for USA)

I've built a lot of models on this subject and they make no sense. Don't try to rationalize the fundementals - valuations in tier-1 cities are reflective of capital market/currency constraints and the notion that the Chinese view real estate as a Baccaratt table.

Anyone know historically how many years did it take from rental = purchase price? I don't want this thread to be about if housing price is too high (I think most think it is). Prices supposedly are falling in Shanghai/China just seeing at what point is it worth it to invest in the market if it ever reaches that point besides buying when the taxi drive/shoe shine person/convenience store owner....starts telling you real estate is BAD like the with the stock market

In around 2006 rent was 3200 while purchase price was around 6500 rmb for the same apartment in Xujiahui.

most of the residential buildings in china were built and owned by the state then transferred to individuals. only the construction since the 90s were commercially developed so there's not a lot of history to go on there.

one thing to keep in mind though is in a highly dense municipality like shanghai, you have as many people as all of southern california. shanghai's gdp recently surpassed hong kong's gdp. hong hong has a third fewer people, so per capita gdp is still only 1/3 of hong kong's levels, but that's still a lot of wealth in absolute terms in a small region geographically so you can still support outrageous prices in the most desirable locations even if the average income level is relatively low. that's why you can see a lot of supercars driving around SH. it's not because the people are rich, just that there's so many people that the absolute numbers of rich people in SH can be much higher than a similar geographic region in more developed countries.

that said, there probably is almost definitely a bubble in real estate but more likely the bigger problem is that there's a huge misalignment of supply and demand in terms of what the average middle income family can afford with an income of ~9k RMB/mo and what is being built but the metrics of a super dense city will never compare with sprawling so. cal.

including inflation, rents, wages, you also have to factor in taxes and municipal services.

btb wrote:things missing

average annual inflation rate
average annual % home price increase
average annual % rent price increase

More things missing:

ROI for money invested elsewhere
i.e. rent vs buying and freeing capital

if conservative: bonds, CD, etc..

if more adventurous: just invest for business

With 5 millions rmb, just for short-term safe financing to my customers, I can generate 50% return yoy

chingiskhan wrote:I pay less than 8000 rmb for rent. The value is 5 million. So it would take me 53 years of rent to pay for my apartment (assuming no increase in rent). In England a studio apartment in central London costs around 250,000 pounds and you can rent it for 1,300 per month. It would take 16 years to cover the purchase cost. 16 years in England vs 53 years in Shanghai!

cool formula,
in my case...24 years for my shanghai apartment
16 years for my apartment in Manila

Mr Totomolo wrote:With 5 millions rmb, just for short-term safe financing to my customers, I can generate 50% return yoy

Wow... 50% per annum and its low/no risk?

Bshaw wrote:

Mr Totomolo wrote:With 5 millions rmb, just for short-term safe financing to my customers, I can generate 50% return yoy

Wow... 50% per annum and its low/no risk?

Sounds like the pyramids of Egypt...

Of course, you need a legit and sound business

In my case : I have to pay the suppliers in China 3 weeks before I ship the goods on board. The customers then pay me against copy of B/L, but sometimes they stretch the payments until just before the vessels arrive to destination (but without original B/L, the goods are still my property.
Gross profit on each shipment: 23% on average.
I can make the money revolve 4 to 7 times a year (see above for timeframe)

If I did not do this, I would lose half of the orders

But don't worry, I also have houses, I don't sleep in my factory

highlander wrote:Anyone know historically how many years did it take from rental = purchase price? I don't want this thread to be about if housing price is too high (I think most think it is). Prices supposedly are falling in Shanghai/China just seeing at what point is it worth it to invest in the market if it ever reaches that point besides buying when the taxi drive/shoe shine person/convenience store owner....starts telling you real estate is BAD like the with the stock market

In around 2006 rent was 3200 while purchase price was around 6500 rmb for the same apartment in Xujiahui.

I keap track of Wuhan prices a bit as my gf owns property there. As home values fell 25+% a few months back, rental prices in the same development rose 50%. Apparently owners there are attempting to recoup lost value on their mortgages through increased rents. (This is in a new development along the river and all the owners paid more than the current value.) I expect the same thing to happen here for anyone living in new apartments at least. If you are living in one that was mortgaged in 2006 after the Shanghai property crash, you are probably paying at least 100% of the mortgage and the purchase price was probably 50% of the current average, so your rent may not climb.

I'm living in an apt. bought after the 2005 crash and at 1900 kuai a month, if their is a mortgage, I'm probably paying more than it. 3 years with no rent increase gives me this impression.

Real estate fair can help to make our house.