Hi everyone, I would like to know your opinion regarding the escalating prices of Shanghai apartments. Do you think the property bubble will burst, if so when? How drastic do you think it will be? Any information fratefully appreciated
Andrew[/b]

My take is that the bubble is a side-product of the trillions of rmb the government through the banks is pumping into the economy. Since it is so difficult for wealthy Chinese benefiting from the stimulus and (especially) the easy credit to invest outside of China, coupled with the lack of options within China, this essentially directs the money into either stocks or real estate. The bank lending is completely out of control - something like 2 trillions US dollars has been dumped into the economy just this year - and the country's entire GDP is something on the order of 4 trillion. Clearly this can't continue, and like in America and Dubai and Ireland the devil will have his due . . . but China is much, much more opaque and can keep the game running longer than other countries with (relatively) transparent systems. Eventually China has to turn off the tap - statements out of the finance ministry suggest this won't be until mid-way through 2010 - and I imagine that's when the first cracks will show, followed by the deluge.

The government is trying to gently deflate the bubble through various measures, but this doesn't seem to be working yet.

One truism though - bubbles ALWAYS pop. Always. People rationalize buying into the bubble by saying to themselves 'this time it's different. The Internet has revolutionized the economy! Housing prices will never go down! Tulips are amazing! I loved Grandaddy Wen coming out and stating that increased urbanization will somehow justify these prices - HAH! As if the people moving in from Anhui are going to be renting luxury apartments in Pudong or Sheshan or buying up some of the acres of empty office space in Lujiazui . . . .

Good post Stark. I am of the same opinion that the bubble will burst eventually. Give it another year or so.

^ Maybe not a burst, but a slow wet sloppy fart followed by some ejecta.

Thanks Stark your comments are very helpful

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http://www.telegraph.co.uk/finance/comm ... ieces.html

Interesting recent article by the Telegraph, who usually feel the pulse on these things. House prices are high in China because there is nowhere else for locals to stash their cash. The Shanghai stock market plunged 68% just over a year ago, which news didnt make the headlines for obvious reasons, but it shows crashes happen here. But that also means money moves from stocks to real estate, thus blowing more air into the bubble. China is a vast country to the bubble is also vast, but the bursting will also be vast.

Hey I was never expecting Dubai to go POP few months ago!

Although I don't expect Shanghai to pop just yet with the expo 2010 still on.

People have been saying that 5 years ago...But prices are still rising in Shanghai...

Taking into account that the New Year has just passed and Spring Festival is almost upon us buyers are not rushing so fast to make a purchase. Traditionally this is a quiet time to sell an apartment and remains so until about March/April. If the bubble will pop mid-year it seems like April/May would be a very good time to sell and next year a good time to buy?

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But people have said the same thing for the last 6 years, about an imminent housing price freefall/bubble bursting etc. Yet prices have still gone up. Why would it be so different now?

Im not saying there wont be a slowdown, but wont be the huge disaster people make it out to be.

If sh can't make it, what hope is left...?

Those with vested interests most definitely do NOT want property prices anywhere near where they are now, nor do they want the Shanghai contagion to spread throughout the country.

Chinese people, as stated in an earlier thread, 'are crazy for house', and pretty soon houses will simply be unaffordable for the middle/upper middle class in Shanghai. This will lead to trouble, and the government's #1 priority - over everything else - is maintaining stability . . . keeping the dragon quiescent. I expect more and more regulations to gradually calm the markets, and then a fairly serious correction sometime late next year. This was actually happening last year, at the onset of the financial crisis - - surely everyone remembers property values dropping by 10% in Shanghai and 20% in Shenzhen? That's a pretty significant drop, and it likely would have gotten worse if the government hadn't pulled out the cork of the credit champagne bottle to keep things from spiraling down . . . they want a gradual deflation down to reasonable levels rather than a precipitous drop that results in the whole construction / real estate / local government funding mechanism (done through land sales) going into shock and paralyzing the country.

Borrowing beyond your means? How many people in this city are living in 400,000 US apartments and making less than 1500 US a month? Quite a few. Anecdotally there are a lot of young families here - even after the 30-50% down payment that Mommy and Daddy scrimped their lives to provide - who hand over 50% or more of their paycheck to the banks to make the mortgage payment on the house they needed to be taken seriously by their friends and families.

And depreciation has to occur. Look at the amount of empty real estate. It staggers the mind. I walked around Thompson Villas a few weeks ago - - acres and acres of empty villas in the middle of Pudong, many in a state of benign, crumbling neglect but probably still 'valued' by their owners at a half-million each and listed on real-estate websites as being great buys. Hah.

There will be a sharp reduction - - and we'll see if the government can do it gracefully or not. As I stated above, economic fundamentals have a nasty habit of proving the optimists wrong.

monalisalee wrote:I repeat, investment in Real Estate over the LONG term is the best investment you can make. Not just here, but in any country.

Absolutely. Although I'd qualify that by adding "in the right location".

All through my house-buying days in the UK I've lived with stories about how prices can't possible keep on rising. But at one point I made more from selling a house that I'd earned in my career over the previous five years.

My current city centre apartment is now worth more than three times what I paid for it five years ago.

Logic says that all this must come to an end but I've been hearing that for 30 years now.

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Hah. Clearly if you bought years ago real estate was a great investment. Real estate IS a great investment in a non-bubble situation - but buying into the height - or what is likely close to the height - is in fact the height of idiocy. Now, no one can know exactly when the bubble will pop and possibly it will continue appreciating for a year but this IS a bubble, and bubbles eventually go bang.

Look, I realize you're in real estate so you should have a better take on this than me, but it really is almost universally agreed upon. (and I suppose it was the real estate sellers who were trumpeting the invincible US housing market until everything went pear-shaped). Here are a few random articles pulled from the web at a glance - Bloomberg, the Atlantic, the Times - not exactly lightweight periodicals.

http://businessmirror.com.ph/home/bloom ... slump.html

http://www.time.com/time/world/article/ ... 68,00.html

http://business.theatlantic.com/2009/12 ... _china.php

Oh, and EVENTUALLY - - - maybe decades later - - - the value will re-approach the rarified heights they are enjoying now, but most people thinking of buying real estate and asking about it on this forum are not looking to settle for the long-term . . . many places - like Tokyo - have never approached their giddy bubble heights of 20 years ago . . . I mean, a crappy villa in She Shan is being sold for what you can pay for a private island in the carribbean with a private house, dock, etc . . . seriously

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root wrote:

Humac wrote:

monalisalee wrote:I repeat, investment in Real Estate over the LONG term is the best investment you can make. Not just here, but in any country.

Absolutely. Although I'd qualify that by adding "in the right location".

All through my house-buying days in the UK I've lived with stories about how prices can't possible keep on rising. But at one point I made more from selling a house that I'd earned in my career over the previous five years.

My current city centre apartment is now worth more than three times what I paid for it five years ago.

Logic says that all this must come to an end but I've been hearing that for 30 years now.

If that happened because "bad russians and indians" buy these homes - i should says it is 100% real deal. Because they bring cash from overseas to England and actually the country become richer..

I did say "the right location". I'd never buy a house in England!

^ Even if its organic?

There's nothing organic south of the border!

leidelaohu wrote:

Andreas wrote:Good post Stark. I am of the same opinion that the bubble will burst eventually. Give it another year or so.

Here's a bet for you guys : $100 says that even if housing prices fall thru the floor China Daily will say nothing like that.

Down to a 8% growth rate in GDP or something, aren't we ? Does anyone really know the truth here ?

You are right about THAT.

Andreas wrote:

leidelaohu wrote:

Andreas wrote:Good post Stark. I am of the same opinion that the bubble will burst eventually. Give it another year or so.

Here's a bet for you guys : $100 says that even if housing prices fall thru the floor China Daily will say nothing like that.

Down to a 8% growth rate in GDP or something, aren't we ? Does anyone really know the truth here ?

You are right about THAT.

I agree with this as well...
As for the property market bursting, well it might take some time, as mentioned above, the economy is controlled by a government which can afford to buy a continent........and there is so much speculation going on, it's completely out of control, thanks to the taiwanese and hong kongese developers mainly.....

First of all, what made you think there is a bubble in the first place? (for your info, price increases does not necessarily mean bubble. If it does, then China is not only having a property bubble but also a pork bubble, cooking oil bubble, chew gum bubble etc etc etc )

Read the articles I linked to. Even the CEOs of major Chinese real estate developers like Vanke say there is a bubble - prices have gone up 57% in Pudong in one year. And the PBoC head has stated there is a bubble in the stock market.

Now, I don't think the pricking of this bubble will lead to widespread catastrophe because the vast majority of Chinese savings are not tied up in either market, and the investors are disproportionately the well-heeled and a tiny slice of the population that can absorb some losses, unlike the American investors who were badly over-extended. But it will still be painful.

I'm not in business, but it kind of shocks me that so many people on this site - who either work in real estate or in a business - cannot see the very obvious writing on the wall. Well, I guess that's why the pied piper leads the lemmings over the cliff time and time again . . .

The property market here will not burst. It will stay stagnant or deflate a little bit.
Many state owned companies are also into real estate.
Locals who buy property here are cash rich and they have holding power.
The developers maintain/control the supply side of the market.
In many big cities, the property itself is still finding its equilibrium valuation.

Yeah I don't believe there is bubble in China either. Have you ever gone to a bank here and tried to get a loan? It's not the case of predatory lenders in the U.S. raking the hickburbs to try and snare suckers. As mentioned before in China a minimum down payment of a 30% is the minimum requirement to secure a loan (at least it was when I bought a few years ago, although in Beijing).

Secondly when you talk about housing prices, there are at least two distinct levels. High-end and LowER-end. High-end apartments in good locations will always be expensive because there are a shitload of rich Chinese and (foreign executives) who want to live in the best places. On the lower-end urbanisation does play a part as well as the steady increase in average salaries.

Furthermore foreign investment in the Chinese manufacturing and mining sectors is starting to pick up again (albeit cautiously). This means that additional money will flow into the economy not only through government stimulus. Just walk into your local shopping centre on the weekend and take a look at the spending going on.

I agree the market could cool, but crash? No way.

The shite load of chinese you're talking about are mainly from taiwan, hong kong and signapore, most of the high end compounds are owned by the people from the countries I have mentioned, and then come the cash rich mainland chinese....