The Chinese Housing Bubble

[william the wie]

How big is it and when will it blow? I expect it to blow up next year.

 

[loosecannon]

JPMorgan: There's no housing bubble in China

JPMorgan: There's no housing bubble in China - FORTUNE Features - Fortune on CNNMoney.com

October 6, 2010, 9:32 am
Contrary to what many investors and banks fear, JPMorgan's (JPM) China guru Jing Ulrich doesn't think there's a housing bubble in the world's second largest economy.

Ulrich, speaking at Fortune's Most Powerful Women Summit Wednesday morning about how to navigate China's marketplace, says the surge in home prices exist in a few areas such as the country's major cities but prices generally aren't inflated.

Her remarks come as Chinese government officials worry about an uptick in inflation. Earlier this year, officials pursued measures to tighten lending for purchases of second homes, as well as other policies to keep the general rise in prices under control. For Japan at the end of the 1980s and the United States in 2008, real estate bubbles ended in big crashes.

Ulrich, managing director and chairman of China equities and commodities, said there are enormous opportunities for Western firms to partner with China, partly because of the country's imbalance in resources, such as coal. But challenges stand in the way, such as protectionism. And while China is poised to continue its extraordinary growth, shortage of labor and income disparities will likely remain.

 

[Toro]

I don't know if housing prices are inflated throughout China, but they are insane in some Chinese cities. In Shanghai, last time I checked, home prices were 15x income, the highest in the world. I have seen one estimate that there are 65 million empty apartments in China, purchased primarily for speculation. In China, apartments are like new cars - once they are used, they immediately fall in value. So apartments bought for speculation are kept empty.

As for when, I have no idea. Usually, however, bubbles pop during a tight monetary environment. I don't think its a tight environment in China.

 

[rdean]

In China, people in high tech make a hundred bucks a month and live in dorms. I suspect they won't need to worry about houses for a while.

 

[william the wie]

Well China has three housing markets:

Agricultural land: no bubble.

Urban land: very bubbly.

Resource land: Hainan coastal resort speculation was the major reason for the anti-bubble legislation. I would very much like an independent analysis of what was going on there: using three different approaches I obtained a range of appreciation rates varying from 600-1000+% annualized price growth. Rare-earth lands have very little unexplained appreciation, wild cat coal fields are all over the map and most of the rest of the mines are somewhere in between.

But first world China is 250 million strong and very much of a bubble that is dependent on Brazilian soy beans and iron ore, Angolan oil and Australian coal.