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...
