China Has Not Been Immune
→by the Mysterious Flying Miser
From the Huffington Post:
“The $180,000 apartment seemed a great investment and the perfect way to start off married life. Zhang Yong jumped at the chance.
“‘I saw it in the morning and bought it in the afternoon,’ Zhang says, sipping a cappuccino in a rooftop coffee shop at his downtown office building. ‘I thought the prices would go up even higher after the Olympics because prices were always going up, never down,’ he said. ‘I didn’t know this would happen.’
“Only a month after making a 25 percent down payment, Zhang’s dream home became a burden. Indeed, more Chinese are getting a taste of what American homeowners have been suffering for much of the past year.
“Still months away from completion, Zhang’s apartment-to-be lost a quarter of its value as Beijing’s housing bubble burst in dramatic fashion. As the walls and the wiring took shape, appliances and furniture were moved in, its value continued to decline. Eight months after he bought his home, apartments in the same complex are selling for 40 percent less per square meter than Zhang paid.”
From the 2009 China Urban Housing Conference:
“The collapse of the housing market in many countries is a stark reminder of the importance of housing for our families, our communities and our economy. We have learned that the loss of decent and affordable housing undermines family stability, disrupts the vitality of the urban fabric and loosens the underpinnings of a national economy.
“China has not been immune from the phenomena (sic) of falling home prices and empty units. The slowdown in new construction has dampened economic growth and has infected commercial real estate and chilled the global demand for many building materials contributing to a worldwide slowdown.
“We need to remember that the real estate (and the housing market) is inherently cyclical and that overheated markets and downturns are inevitable. We must also acknowledge that notwithstanding these cycles that housing matters, and where and how we live shapes the urban environment.
“This year’s Urban Housing Roundtable will try to place today’s housing market in a larger context. It will explore the connections between decent and affordable housing and family stability, neighborhood vitality and economic growth. It will also address the issue of how we should invest in affordable housing as the market starts to recover.”
From Caijing English:
“The average price of land in 35 major Chinese cities was 3,189 yuan per square meter in the first quarter, down 2.3 percent year-on-year or 1.5 percent quarter-on-quarter, China Business News reported, citing a Ministry of Land and Resources report released on April 23.
“The southern city of Shenzhen saw the sharpest decline in prices, with a fall of 26.8 percent, with other large cities in the south and central regions of China reporting price declines of more than 10 percent. Beijing bucked the trend, with prices rising 5.3 percent year-on-year, reflecting the relative scarcity of new development sites in the capital. The Ministry said in its report that land prices are expected to keep falling in the first half of this year, as the domestic economy has yet to bottom out.
“There has been significant downward pressure on land prices since mid-2008 as developers struggle to attract investment capital amid the global financial downturn. Southern cities that had attracted the lion’s share of speculative investment during China’s real estate boom led the decline, with other major cities following suit later in the year. Developers have also struggled with excess supply in the market, as seen in a 16.2 percent fall in first-quarter construction starts as developers sought to move existing units rather than embark on new projects.”
” Eight months after he bought his home, apartments in the same complex are selling for 40 percent less per square meter than Zhang paid.”
Cool! thanks for the good bear food Flyer!
I demand to know who the MFM is!! At least answer me this, is the MFM a regular?
Damn. I thought it was you Muggy.
It’s flatfplan/taxme, isn’t it?
You can’t fool me.
Too coherent to be taxme…
taxme uses lowercase. so it can’t be him/her
taxme is the original Twitter-er
Taxmebootay is the master of the impenetrable almost-haiku.
I don’t understand MFM’s appending “sic” after “phenomena,” since the word “phenomena” seems correct in the context where it appears. Is that a clue to MFM’s identity?
“Phenomenon” would be the correct usage, since the housing crash is a singular occurence.
I noticed wmbz posted a longish piece about CHINA in the Aug 15 Bits Bucket. So maybe MFM is wmbz?
It’s not me.
“The collapse of the housing market in many countries is a stark reminder of the importance of housing for our families, our communities and our economy. We have learned that the loss of decent and affordable housing undermines family stability, disrupts the vitality of the urban fabric and loosens the underpinnings of a national economy.”
China…they have a population of over 1 Billion people’s….whose fault is that? & how did that happen?
It’s a good they’ve figured out how to “control” such numbers…it’ll come handy when a large portion of their “society” decides that… “they’re mad as hell and ain’t gonna take anymore!”
“China Has Not Been Immune”
You do have to wonder what kind of helpful advice Stammerin’ Hank offered top Chinese financial officials back in the early-2000s when the US financial system was held up as a model for the rest of the world to emulate.
Regarding their bubble situation, my impression is that it is playing out in parallel but a few years behind the US bubble runup and post-bubble bust. I would guess their bubble peak and post-bubble period of decline will also lag ours.
One further thought: Given their crushing population size and their relative inexperience with capitalism compared to the US, I am guessing the Chinese bubble experience will look even more extreme than ours through the retrospective lens of history.
It’s hard to say. They have a controlled media (more than ours) so we don’t know what is really happening. I was posting on FBs in China and Vietnam as early as 2005. And I remember reading around 2000 that one fifth of the worlds cranes were working in Shanghai alone. Ordinary people were buying spec condos, pre-construction, years ago. Speculation has proven disasterous for bubble markets, so I think we can expect a serious crash in Chinese cities. And this is outside of commercial RE, which is falling apart as well.
HOW ABOUT “INDIA”?
In Mumbai, India the apartments are more expensive than NY city now with a 400% run up in prices in the past 3-4 years. And the prices don’t seem to be correcting as yet. The Indian and Chinese stocks are also up again 80% since March.
I think even if population is more in these countries and there could be a demand, but the prices have to be sustainable. A lot of American Companies are paying top dollars to a lot of employees in China and India. But not to many people that there would be a huge demand for housing all of a sudden in the last few years.
Thoughts???
You know, I have never heard much about India and the bubble. Do you have any links?
Alas, no links. Coworkers from Amaderabad (sp?) were pointing out how much home prices had jumped up in 2002 through 2006. I notice they shut up lately…
Note: Nice homes in *safe* neighborhoods in developing countries often cost more than a similar home here as its tough to get into those safe neighborhoods.
Got Popcorn?
Neil
I have spoken with temporary workers from India who insist that the Indian housing bubble is not a bubble at all, but rather an “advancement” in prices due to “development” of the Indian economy. This “development” is fueled by incomes from temporary workers who live 2 to a room during their stay in the US while sending their money back home, as well as Indian citizens employed in India by US companies taking advantage of recent globalization laws. Of course, the advancement in prices is fueled not only by that temporary industrial development, but also by the same speculation that set off a time bomb on the rest of the world.
There is a housing/credit bubble there, but I don’t feel like looking for links right now.
http://indiahousingbubble.blogspot.com/
This person started the blog on Indian RE inspired by Ben.
I googled and this is the first one that appeared:
http://indiahousingbubble.blogspot.com/
Big V,
There is a massive bubble going on in India. Places like Delhi, Mumbai, Bangalore and even “B”, “C” grade cities in India have seen 300-400% price increases in RE in the last 3 years. The same game is going on there by builders as in US and Indian Govt. recently had a massive stimulus for builders and banks.
The only difference is that Indian economy works a lot on black money or stolen money from Uncle Sam in India. A normal apartment in Delhi or Mumbai is easily $200K and good ones are in millions of USD. People there are smoking dope. And if someone buys a 200K apartment, he pays close to $120K in black money which is all hoarded cash.
Any Indians here????
“Any Indians here????”
We used to have Jas Jain and AB Dada, but I think they sort of moved on.
You know what they say, don’t let the door hit your ass…
I said this 2 days ago - this sums up the situation:
I’ve tried to explain to my coworkers that their super efficient government, long-term planning, public transport & infrastructure, coupled with eminent domain (right to redevelop as desired) is the very reason that property prices will not continue to rise. What makes a location valuable is access - to jobs, to parks, to hospitals, to public transportation, and if those elements are made available to all corners of a rapidly expanding city, there isn’t any huge benefit to living in the expensive areas.
On the other hand if a government is inefficient in scaling out the above urban conveniences, increasing population pressures will cause huge price rises in the desirable parts of town. Basic supply & demand.
Somehow they don’t buy my argument. Not that they have a choice in where they can park their money.
But where this is different from the US style bubble is that THERE IS NO US STYLE FORECLOSURE in either India or China. You better work your entire life and pay off the loan.
“Any Indians here????”
Yeah, where’s tech support when you need them?
BigV: I have spoken with temporary workers from India who insist that the Indian housing bubble is not a bubble at all, …
There is some kind of a bubble that’s true, the “IT workers” (which could mean anything from call center folks to computer science PhDs) have pushed up prices in some areas. “Easy credit” in India means interest rates of 11%, with 20% down. Where banks, especially the private ones, failed is in actively pushing loans and pushing up assessments. Foreclosure and bank bailouts aren’t really options so when the bubble dissipates it will be an “honest” dissipation. Lessons have already been learnt.
HB says The only difference is that Indian economy works a lot on black money or stolen money from Uncle Sam in India.
It’s a big problem - there is a lot of black money. Which really pisses me off because the marginal tax rate in India is even less than in the US (in the highest brackets for both). Things are changing positively because many transactions are becoming check/cheque only.
Also remember that the black money component is not factored into bank loans. So if a house cost $120,000 to the customer and he has paid $20,000 in black money (cash of course), the record price of the house is only $100,000 and the bank has loaned him only $80,000. So it will take the market to tank 33% before the bank is losing money. Yeah and the concept of jingle mail doesn’t exist, so it’s golden handcuffs instead.
(FYI, it is possible to buy houses without any black money - just takes a bit of persuasion.)
Bottom line is that people will not hesitate to pay 50% off their take home in rent. They won’t hesitate to pay even higher amounts to own, so a 200k$ apartment is something that could fit the budget of a couple earning $40k/year. Seems not terribly unreasonable, but remember they are paying 12% interest.
Unsustainable hikes
Praveen K Singh Tags : Mumbai, Gurgaon, Property, Deepak Parekh
Posted: Saturday , Aug 15, 2009 at 0239 hrs
Even though the real estate sector is yet to gain adequate momentum, based only on a mild pick up in sales, a few developers have hiked rates. Discounts, which had become commonplace and were substantial when sales were at their nadir, are now being withdrawn. Will these attempts by developers to create an illusion of high demand succeed, or will they have an adverse impact on the nascent recovery?
…
yensoy, this doesn’t sound so much like a bubble. It does sound like development.
The US bubble popped because mortgages (and HELOC for Toys) had payments that would go up, sooner or later. The only way to NOT foreclose was to sell to a Greater Fool, or to refinance, which is also basedon Greater Fools. (Plus the FB had to avoid the traditional layoff/divoce/medical). The bubble depended on infinite greater fools, and the bubble “popped” when we ran out them.
In India, I assume those mortgages were 20%-down fixed-rate fully-amotized. If the payments don’t go up, and if you stay healthy, employed, and married, you’re self-contained and there’s no need for greater fools. India might still be in good shape. Now, if the global depression reaches them and they begin losing jobs, that’s another issue.
Oh sorry
Oxide:
Leverage is the one component that amplifies bubbliness.
But as long as there is market that does not reflect fundamentals, bubbles can develop. In that sense, there is a bubble - people have paid more than what makes sense. On the other hand, when it bursts (as it has), the downside will be somewhat more “contained” than in the US.
The Reserve Bank of India (equiv of Fed) has been supremely conservative and has largely avoided the excesses of other economies. (part of that is because every institution in India is super conservative, part of it is because there is no money pump as in China [sterlization / foreign exchange accumulation], and part of it is because everyone is really scared about runaway inflation because it can lead to social and political breakdown)
Another way in which the Indian bubble is different: builders have been known to take deposits and not build, i.e. having decided to cancel plans to build they may still take deposits. Yeah, it plays out like that sometimes. For the builders it may be a cash flow issue. How it fits with the bubble is like this: you think you are getting a great deal on a property, but hey, no deal. Prices don’t really move unless people liquidate, and people do hesitate to liquidate. Data gathering and dissemination is not like in the US - most of the news is by word-of-mouth. (black money component is one reason gathered records don’t mean much)
This sounds familiar!
Where The Middle Rules
India’s superrich lose the limelight.
By Ruchir Sharma | NEWSWEEK
Published Aug 15, 2009
From the magazine issue dated Aug 31, 2009
…
Similarly, in the real-estate market, the latest catchphrase is “affordable housing.” The average unit cost of an apartment in India’s five leading cities is down by 50 percent over the past year, not just due to falling prices but also to a reduction in the size of the average home. Developers have learned the hard way that selling in India is a volume game. Their earlier idée fixe that penthouses and villas were where the glamour and margins lay has given way to the reality that the market for such products is extremely limited.
…
Conversation with Indians who have been here many decades:
India doesn’t have same laws as US when its time to collect from deadbeats. Therefore, the foreclosure mess may not occur.
Another thing is if Indians fall behind on payments they expect the bank to understand the reason, and be patient. What choice does a bank have, legally not a lot.
When credit card first became available in India, customer CC being sold was rampant. In quick order CC companies denied buisnesses CC services and they realised they were losing clients who didn’t want to carry cash.
Historically RE was bought with cash or loan from friends & family. With RE it’s going to take same learning on all sides to deal with credit issues.
It’s a good the thing the The US Military helped get rid of Saddam…I’m certain the Chinese Gov’t will be sending noodles of gift packages & fortune cookies to show their appreciation for all the hard work done in “securing” yet another Chinese business opportunity…
Purchasing Addax, which has oil reserves in Iraq’s Kurdish territory, shows Chinese oil companies are “going for bigger transactions,” said Arruda, who is advising on what he described as “significant” acquisitions. “These deals seem to reflect an appetite we have not seen before.”
“The Chinese don’t have enough nickel, don’t have enough oil, and they don’t have enough copper,” Jim Rogers, chairman of Rogers Holdings said… “There’s a crisis coming. They are going around the world buying up what they can.
“…The state-owned parents of PetroChina Co., China Petroleum & Chemical Corp. and Cnooc Ltd. are studying investments in companies in Africa, Latin America, the Middle East and Central Asia,”
The Reuters/Jefferies CRB Index, which tracks 19 raw materials, dropped 36 percent last year, the biggest annual decline since at least 1957. The measure has gained 15 percent this year on signs that the recession may be ending.
Chinese energy companies have spent at least $13 billion on overseas assets since December as they take advantage of lower valuations caused by the slowdown.
China May Boost Energy, Mining Acquisitions by Half:
Aug. 14 (Bloomberg) By John Duce
YUP this is the MORON generation, instead of paying the Iraqis to lay down their arms and live peacefully like American Indians Tribes on separate reservations, Noooooo we had to screw things up by killing Saddam.
It’s a good the thing the The US Military helped get rid of Saddam
“…by Purchasing Addax, which has oil reserves in Iraq’s Kurdish territory, shows Chinese oil companies are “going for bigger transactions,”
I’ve forgotten, how many “coalition troops” did the Chinese provide?
Gulf Arab money ‘behind purchases of Israeli land’
Aug 15 09:55 AM US/Eastern
Vast tracts of Israeli agricultural land in north Israel’s Galilee area have been bought up by Arabs with financial backing from the Gulf, Israeli public radio reported on Saturday.
It said dozens of hectares (acres) have been bought and that a local farmers’ association had tried in vain to warn the Israeli authorities about the sale.
The radio station quoted Agriculture Minister Shalom Simhon as saying the affair was not a matter for his department since “it concerns private land.”
Galilee and the Negev desert in the south are relatively lightly populated, and Israel has a minister, Sylvan Shalom, charged specifically with development.
Much of the country’s Israeli Arab population of around 1.4 million people lives in the Galilee.
On August 3 the Israeli parliament passed a controversial land reform law that allows local officials to privatise publicly owned land, triggering the ire of the Arab minority.
Arab MPs said the law, which is backed by hardline Prime Minister Benjamin Netanyahu, would block efforts by Palestinians who fled the creation of Israel in 1948 to recover their property or seek compensation for what they have lost.
The new law allows local municipal officials to sell off state land in urban centres and maintains a previous ban on the sale to non-Jews of land controlled by the Keren Kayemet LeIsrael Jewish agency.
If one good thing comes from this is we finally get off the oil cycle and develop alternate energy.
China is apparently ahead in AE.
But wait a minute, the coalition was there only to spread democracy and not for advancing private industry, right?
Pot, meet kettle
OK, sorry about the blog being down today. The host did some upgrades last night and needed to tweak it a bit. There may be ongoing disruptions, so please be patient.
Oh good, I thought Mr. Cole’s cold was spreading…
It happens sometimes. Nothing you can do about it.
Ben, I was SO frustrated that I went to look at an open house bank owned. 31 yr old house that was a mess for $328k, 2,500′,5 bdr/3 +Den, plus teensy backyard with everything greenish and broken wood fences etc.
2 a/c broken, and outdated since it was built.
See what you made me do.
Well, you can’t blame the bank for trying. People are buying some of these things, so they fish a bit. You’d do the same thing.
‘I thought the prices would go up even higher after the Olympics because prices were always going up, never down,’ [Zhang] said. ‘I didn’t know this would happen.’
Ah, yeah, the ol’ “the Olympics will usher in a new era of everlasting prosperity” meme.
Don’t fall for it, 2016 bid cities! It’ll bite ya in the ass every time …
2 family house just down the street…one of the few sales in the nabe:
http://www.zillow.com/homedetails/charts/31935790_zpid/
Sale History
05/14/2009: $450,000
07/17/2007: $780,000
09/30/2005: $600,000
04/29/1996: $209,000
“We have learned that the loss of decent and affordable housing undermines family stability, disrupts the vitality of the urban fabric and loosens the underpinnings of a national economy.”
Ironic that the quote above is about the crashing of the bubble, not the inflating of it.
We lost decent and affordable housing during the bubble times. If we let the housing market “crash” (i.e. come back to reality) we might again actually have affordable housing.
I have excellent credit but a newer teacher’s income and some debt. I qualified recently for a $180,000 loan. There virtually isn’t a condo in a decent area of the San Fernando Valley that I can afford (with a solid elementary school for my son). And this is after the “crash.”
So I’m still…waiting. Thanks to this blog I didn’t buy during the boom, even though my family was champing at the bit to “help” me get in. You guys rock. I hardly ever post but this is my favorite site to read. And as a writer, I love reading Olygal, no matter what she’s writing about. That gal has a wonderful way with words and a great sense of humor. Go geoducks!
WinLA, this was EXACTLY the sentence I was going to comment on, and your comment is roughly the same as mine — that we lost “affordable housing” as credit ballooned and prices skyrocketed.
The probability is that public school teachers will eventually (again) be able to afford housing, although I am aware that Calif school budgets are under pressure. You should STILL wait even if you find something you can apparently afford. So long as renting is a lot cheaper than buying, prices are likely to go on declining.
Yeah, but what kind of housing. I will never forgive the homebuilder’s total abandonment of the reasonably sized house. “You want an SFH, it has to be a behomoth. Like cozy cottage? Sorry, get a condo. You get to paint the walls and there’s a singles bar down the block. No yard for you!”
“Zero lot lines” = apartment living without the bonuses.
Not everybody wants a yard, but there are a LOT of people who will trade some house space for yard space. We’re one family that went for a larger lot instead of a larger house. I mean, how large does your bedroom really need to be? If it’s big enough to put your bed in, and get around and dress without falling over, what’s the need for tons of space?
Bitter Owners I’m so sick of your sniveling.