China blog

Overview of private banking in Asia part 2

This is the second part of Overview of Private Banking in Asia, for part 1 click here.

Singapore

Opening an account for non-residents is easy and straight forward. One of the biggest advantages in dealing with Singaporean banks is complete absence of the language barrier -- since English is one of the four official languages in Singapore, all the communication, both written and oral, is conducted exclusively in English. Upon opening an account you are issued an ATM card that is part of global PLUS system that allows cash withdrawals worldwide. Make sure to set the maximum withdrawal limit while you are still in the bank if you plan on using this facility outside of Singapore.

Credit card can be issued to residents only and if you cease to become one, the card will not be renewed. One way to avoid it (if you were once a Singaporean resident) is to maintain a local mailing address in bank records.

There is a minimum threshold requirement, normally SGD 200 above which the monthly administration is waived.

Web banking is very convenient and secure -- in order to log in, you need your user name/password combination along with a special electronic device that generates a code which must be entered every time you log in. Online banking can handle local and overseas fund transfers and various bills payment.

Hong Kong

By far, Hong Kong offers the best private banking system in Asia. Like in Singapore, all the communication is in English (in fact, every document is bilingual with English and Chinese side by side). Practically, every bank employee speaks fluent English and their efficiency is excellent. 

Hong Kong bank issued ATM cards participate in PLUS system and can also be used for local purchases, just like a normal debit card. Credit card will not be normally issued to a non-resident, however if you are a resident at the time of applying for it, even when you leave Hong Kong, the cards will remain valid and can be renewed no matter where is your new address.

Internet banking is similar to Singaporean one in terms for convenience and security but has more features. The local and overseas fund transfers are easy but for large wires you need to make prior arrangements via written correspondence with the bank. If you want to facilitate easy transfers between Hong Kong account and your other accounts overseas, I recommend filling up the authorization form in the bank that sets the maximum allowed amount (you can set whatever you feel comfortable with).

One of the strongest advantages of dealing with Hong Kong banks is a possibility to invest in a large variety of mutual funds directly from your online account. You can monitor your investments, buy, sell or switch funds at a click of a mouse -- all easy and secure.

The bank will e-mail your regular statements along with mailing paper version to you anywhere in the world, they will courier your credit cards to you for free regardless of where you live. Practically, every issue can be handled online or by phone. You can live outside of Hong Kong for years and still being able to actively manage your account without ever setting your foot there.

In conclusion, Hong Kong bank account is a must for every expat living in Asia -- if you still don't have one, make sure you get it next time you are there.

China's property bubble -- false prophet Gordon Chang is back

Continuing the earlier discussion on Chinese property bubble: there is no shortage of doom and gloom prophets around these days. One of them is the infamous Gordon G. Chang who has recently published the article in Forbes.com called "China's coming property bust".

Gordon G. Chang is the guy who, in his book "The Coming Collapse of China" published in 2001, predicted total collapse of Chinese financial system along with its communist government by 2006.
Now he is sharing his "insights" into real estate market... This is what he wrote:

“Even if I don’t eat for the next 50 years, I still won’t be able to afford a flat in Shenzhen.” As we were stuck in traffic last Sunday in his bustling hometown, a cab driver has just identified why the Chinese property market is the world’s biggest bubble at the moment. He makes a maximum of 4,000 yuan a month, but an apartment for his wife and two children will cost about 250 times that amount. The chubby dad has given up dreams of owning his own home in this southern China metropolis that borders Hong Kong. 

Prices for apartments in China are seriously out of whack. They were rising this year at the rate of 20% a month in some regions. Overall, residential real estate prices soared 68% in the first quarter of the year, compared to the corresponding period last year. In the second quarter, prices were up 12.2% from the first quarter, according to Nasdaq-listed China Housing & Land Development Inc. China is the world’s fastest appreciating property market" etc. etc. etc.

For the full article go here: China's Coming Property Bust

This is what I think about it: real estate market in China is certainly overheated in the 1st tier cities and meets "bubble" criteria. The question is whether the bubble will pop or deflate. I don't believe in any real estate market crash but the prices seem to peak and will most certainly fall. The rapid property prices increase in those cities was largely fueled by domestic investors unlike in US where real estate market was out of control because of irresponsible lending by banks. In China, the situation with mortgage lending is completely different and the banks are much more conservative and much better capitalized than in US before the financial crisis.

Since April this year banks were instructed not to lend mortgages for 3rd property and only finance up to 50% on the second purchase. These measures are turning investors away from this market into more profitable areas. This is why the market will most likely cool down instead of crashing.

The article makes a point based on author's enlightening conversation with Shanghai taxi driver complaining that he couldn't afford an apartment there. I could assure him that an average New York taxi driver is unlikely to afford an apartment in Manhattan, the same goes for London, Paris, Seoul, Tokyo etc. It has nothing to do with the actual condition of the real estate market in any of those cities.

Authors like Gordon G. Chang simply don't know what they are talking about -- he is just trying to make a buck on pure sensationalism, he has learned the system well after making fortune on his so called book about China collapse in 2006...

Real estate investment situation in Chinese cities

There have been a lot of recent speculations in Western media about the inevitable collapse of Chinese real estate investment market causing the entire economy to crash, and, in turn, pulling the world economy into new recession. The parallels are being drawn with what have caused the most recent global financial crisis, namely US mortgage market collapse.

In my view, these predictions are highly exaggerated and it is unlikely that A -- the real estate market in China collapses, and B -- that any troubles in this market will have any substantial effect on Chinese economy. There are several reasons to this view: first, there are no equivalents to US-type subprime mortgages in China and the banks' lending is, and has always been, fairly conservative. Home buyers still have to come up with 30-40% down payment on their first purchase and those rules are still being gradually tightened. This means that even a significant price drop poses little threat to well capitalized Chinese banks.

Since April 2010, lenders in big cities such as Shanghai and Shenzhen have adopted new rules: the second mortgages are only available with the minimum 50% down while buyers of third properties, clearly the investor category, can't get mortgages at all. These measures will certainly help "deflating" the real estate bubble other than bursting it.

There are no signs of any significant price yet drop but it is clear now that the prices will eventually fall in the next few months. Considering the fact that real estate prices have climbed by about 40% (or more for some areas) since the beginning of 2009, it only makes sense. It is apparent that many construction sites have simply been abandoned as developers failed to sell enough apartments to finance continuing construction. In Shenzhen, where I live, this is quite a depressing view -- many of those abandoned buildings stand in central areas, popular with wealthy residents and businesses which are, understandably, quite unhappy about it. If the construction will not resume in the next few months, after being exposed to the elements, those buildings will have to be demolished. I can only imagine how many people will be losing their investments this way... 

Looking at what is going on in the real estate market, those investors whose apartments are still under construction must have many sleepless nights. There are huge areas under development in Shenzhen and it seems quite unlikely that thousands of those new units can be quickly populated once completed.    

I'm going to update this blog with any more news on the real estate market in China but what is clear now is that it's a bad time for real estate investing, however there is still very little chance of larger fallout that may affect Chinese economy at large in any significant way.