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Beijing Real Estate Prices Plunge 27% In One Month


Alekbaylee
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I don't know much about China, but here's an interesting comment that suggests RE there is like a casino...

 

This article is misleading. MarketNews stated that prices plunged suddenly in Beijing due to government curbs. This was then reposted as China’s bubble popped by someone who may not be familiar with the way things work over here in China. RE is pretty much treated like a stock market, the herd gets in, prices jump by like 40%, some crackdown is announced, people jump to the sides and observe, very few deals happen in that period. Some people start panicking and cut prices 10-20%. This correction can happen within a very short. But that doesn’t mean that cash isn’t ready to buy back in as soon as the first uptick appears. I think Melster gave a good description of the mentality above. A bubble usually pops when all credit is exhausted and there is no more money to prop up the market. I don’t believe this is happening in China.

 

This is very unusual for a Canadian observer where most people buy houses to live in their homes and prices remain fairly stable over the short to medium term. I think Vancouver is one of the few places where Chinese buy in higher numbers, so it does have it share of volatility as could be seen during 2009.

 

 

This is crazy/scary altogether though...

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I found the following links in the comment section interesting:

 

read the first two highlighted excerpts here about "shark loans"

http://globaleconomicanalysis.blogspot.com/2010/07/ponzi-shark-loans-fuel-chinas-housing.html

 

and

http://www.hturning.com/index.php?action=topic&id=44

China’s official class is not tied to big corporations, but to real estate. Chinese wages are low, even for high ranking officials. But they get free condos in major cities, worth millions each. In the old days when the imperial regime debased copper coins, the officials would hoard gold and silver. Now they need a new storage of wealth. And that is real estate. Stocks in large state owned monopolies could be a choice except they are subject to international monetary flows, and American monetary policy. Real estate is local and totally controlled by the domestic official class.

 

Most new condos sold in China are not finished in a livable condition. If the buyer actually wants to live in it, he/she would have to hire professionals to build the kitchen and bathrooms, do all the flooring, cabinets, lights and wall painting. The reason they are not finished when sold is so that they can be a long term storage of wealth. Unfinished condos in high rise buildings are less likely to lose value over time – there is nothing to deteriorate inside. To top it off there is no property tax in China. You can buy any number of condos, leave them in the unfinished condition and there is little maintenance cost.

 

So the official class keeps accumulating real estate, while at the same time printing money to push up its price. By now the bulk of China’s wealth is in residential houses. An untold number of them, rumored to be in the millions, are empty (sold as investment). The country can simply keep building houses, print money to buy them and let them sit idle, and enjoy double digit GDP growth. It’s an interesting phenomenon.

 

 

 

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