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This is just idiotic. You are saying they are building too much so many homes are vacant, but the property prices are too high. It makes no sense. Of course you can claim they are making ghost cities, but in reality most construction are in the suburbs.
If you knew anything about China you would know that many of those vacant homes are very bad old homes who are going to be demolished. In reality there is not enough good homes in China. The construction is a good thing.
The reason construction is so high, is because the demand for good housing is very high, prices are high and the government is encouraging it. A drop in house prices in China will be a good thing. Construction many homes will eventually make home prices drop.
You are comparing the building standards in the US with China who until recently was desperatly poor?! Reality is, those new homes are a million times better than the homes constructed in the 1980s. And they are sold for a lot. That is why construction is so high, and need to be so high. Those energy efficient homes you talk about cost more.
The most important thing for the Chinese government is to get people into decent standard of housing, not follow your environmentalist agenda.
Your BS have absolutly no end. First off the US auto market in the 1900-1950 had almost no competition from overseas. And the Chinese car market is expanding heavily to its own domestic market, because the cars are much cheaper and are getting better
Of course China has its problem. The biggest problem is that they don't take care of stuff, such as buildings and the enviroment. They build something new and flash, and then leave it to rot. Also corruption, and burdensome regulation can cause problems.
But China has huge potential for growth. GDP per capita in China is 9K. In the main cities the GDP per capita is 20K. Eurozone is at 35K. Just from urbanization the economy will grow.
Clearly I struck a nerve. I don't know what is up with all the personal attacks; the housing info I cited came from an article. Don't like it? Then provide your own links that refute the source.
Beijing's largest district Chaoyang has issued figures showing that a total of 1.33 million square meters of residential space are vacant. Over half of the space has been empty for at least three years.
Among the empty residences, villas and luxury apartments totaled 521,000 square meters, accounting for 39.2% of the total, and 54.9% of homes have remained empty for over three years. Ordinary apartments accounted for 18% of the empty residential space, according to the report.
This article seems to imply that much of the reason for high vacancy and high property prices is due to speculation by developers without corresponding demand. Perhaps too much affordable housing is being demolished for new developments that many Chinese cannot afford? Perhaps developers are simply overbuilding? Either way, finding reliable or comprehensive data on the Chinese housing market is nearly impossible.
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"Today, there is an impulse from both the government and developers to build newer and higher buildings to gain greater profits, which has accelerated the pace of the demolition of old buildings. But it is actually not in line with the concept of sustainability and has even pushed up real estate prices," he said.
And again, the article reiterates my point that Chinese buildings are not built to last, even newer buildings built as recently as 1999. You can attack it as some sort of environmental agenda, but most would understand that building for longevity is simply common sense. China is a large country with a large population that generates a lot of waste. As the country develops a middle class, that waste is only going to increase. If anything, I would think Chinese society would place an even greater emphasis on resource conservation because there are so many people. The US and Europe have been regulating air quality, water quality, recycling, and reducing waste for decades now. China has the technology to do it, but they don't seem to have the motivation and it is going to come back to haunt them down the road.
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You completely missed my points on the Chinese auto industry. The three points I made: 1) Foreign competition is taking market share away from domestic brands; 2) The Chinese government and its joint ventures do not respect intellectual property; 3) Because they do not respect intellectual property, foreign manufacturers produce lower-tech models in China specifically for the Chinese market to avoid divulging trade secrets
The slowing market, which saw surging growth of more than 30 percent in 2009 and 2010, and drop to low single digits in the following two years, has crushed the market share of China's homegrown auto brands, including BYD.
And unfortunately for Chinese automakers, competition from abroad is becoming stronger. Ford just reported China sales last month at 105,000 vehicles, putting it now solidly ahead of Geely, BYD, Chery, etc. Just 2-3 years ago, Ford was a minor player in China. GM and Volkswagen are the two dominant players and continue to see increasing sales in China.
Foreign branded automakers account for 70% of the Chinese car market. According to this source, there are 100 domestic vehicle manufacturers, and the top 10 make up 90% of the Chinese domestic market share. That is what I meant when I said there are simply too many domestic automakers and eventually many of them will end up going out of business. They aren't going to be able to compete with larger firms with substantially larger R&D budgets.
Now, of the top ten manufacturers in China, seven of those are Joint Ventures with multinationals like GM (SAIC) and VW (FAW) and Chana (Ford). They are joint ventures because the Chinese government forces them to share technology in order to participate in the Chinese market. This is where we get into the issue of intellectual property.
Unfortunately, to play ball in China you have to play by China's rules. Joint ventures have improved because multinationals are forced to share trade secrets to sell in China, usually the older technology and platforms that are then sold through Chinese branded models. The Chinese government has even gone so far to decline subsidies unless trade secrets are shared, such as the case with the Chevy Volt. GM rightly declined.
This is why GM, Ford, VW, Toyota, etc. have no desire to produce their most advanced models in China.
Clearly I struck a nerve. I don't know what is up with all the personal attacks; the housing info I cited came from an article. Don't like it? Then provide your own links that refute the source.
In your link it says there is 1.33 million square meters vacant. The average family size in Beijing is about 3 people and the average size of a home is about 70 square meter. Those houses could room 57000 people. In Beijing there is about 20 million people. A vacancy rate of 0.29% is not a high vacancy rate
The luxury villas is about 200 square meter, hence there are 2605 vacant luxury homes. That's nothing. It is likely due to them overpricing their homes.
Of course I get annoyed when clueless people like you, pretend you can accurately predict Chinese future.
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This article seems to imply that much of the reason for high vacancy and high property prices is due to speculation by developers without corresponding demand. Perhaps too much affordable housing is being demolished for new developments that many Chinese cannot afford? Perhaps developers are simply overbuilding? Either way, finding reliable or comprehensive data on the Chinese housing market is nearly impossible.
Speculation is just a buzzword for socialists/leftists who want to ignore market forces. High demand drives prices upwards, not speculation. The vacancy rate in Beijing is not high. And the price is high due to lack of housing.
Evidence for that can you see from Beijing and its neighbor Tianjin. Tianjin has significantly lower prices, but much higher construction rate. In Beijing they are not allowed to construct much more because of traffic congestion.
Yes, but they are not talking about the homes constructed now. They are talking about those old terrible homes you find in the city centre. And yes, they need to be replaced.
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And again, the article reiterates my point that Chinese buildings are not built to last, even newer buildings built as recently as 1999.
1999 in China is ages ago. In 1999 China had a GDP per capita of 3200. That is the same GDP per capita as Laos and Ghana today. So why do you expect houses build before 1999 to be at a decent standard. Would you expect that from Ghana or Laos?
Newer buildings are much better due to more strict building code.
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The US and Europe have been regulating air quality, water quality, recycling, and reducing waste for decades now. China has the technology to do it, but they don't seem to have the motivation and it is going to come back to haunt them down the road.
No one is saying that China shouldn't focus more on quality. But remember China is still a poor country. 9000 in GDP is not rich. That is the same level as Peru.
What I don't like is your extreme negativity. For instance in 2000 everyone thought the smog was fog. Now the media is allowed to complain about it, and the government is promising to do something about it. Remember there was a time when LA and London was covered in smog. And at that time their GDP per capita was higher than China today.
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Quote:
You completely missed my points on the Chinese auto industry. The three points I made: 1) Foreign competition is taking market share away from domestic brands; 2) The Chinese government and its joint ventures do not respect intellectual property; 3) Because they do not respect intellectual property, foreign manufacturers produce lower-tech models in China specifically for the Chinese market to avoid divulging trade secrets
1. They are produced in China, so it doesn't matter. Also, many chinese brands are expanding as well
2. And? The opposite is not much better. For instance Samsung got sued by apple for copying their square icons and some other natural features. Companies like HP can release defect computers, and still have no problems because the American justice system is heavily biased toward the rich.
3. So?
My question to you. Does the brand really matter for China when it is produced in China. That is the big difference from before. Earlier cars were produced abroad and imported into China. Now they are produced in China and sold at much lower prices. Many of those cars are then exported back to America/Europe.
That is why the manufacturing industry in Europe and America is collapsing. They can't compete against Chinese and Brazilian car factories.
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This is why GM, Ford, VW, Toyota, etc. have no desire to produce their most advanced models in China.
Chinese people are not interested in them. They are too expensive.
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China has a lot of growing up to do if it wants to be a respected economic player on the global stage
China is an inward looking country. They are not interested in your approval. The reason they force companies to share their trade secrets is because they want to start producing them themselves. China does not want to be a subsidiary of America where companies are taking 50% in profit.
In the car market many people drive foreign brands, because they have higher quality. In other markets where western companies dominated, chinese companies have been taking over. For instance Lenevo has experiences massive growth, because their computers are cheaper and more reliably than American brands.
China (government and people) are very ambitious.
Their goal is to make the rules, not follow the rules. They want to build a model for other countries to follow.
This is very different from Japan or South Korea.
They believe they had led the world for thousands of years and they will come back soon. Ridiculous or not.
Speculation is just a buzzword for socialists/leftists who want to ignore market forces. High demand drives prices upwards, not speculation. The vacancy rate in Beijing is not high. And the price is high due to lack of housing.
Okay. This argument borders on bizarre. Essentially you're accusing someone of socialistic thinking for actually criticizing the overbuilding of real estate due to the demands of unrealistic state planning. The oversupply of housing in China has nothing to do with capitalism. It is state planning run amok, operating in complete absence of market awareness or discipline.
We actually saw the same basic effect happen beginning in 1996 when the government changed policy to actively act as an agent for real estate ownership through the offices of FHA, FMAE, FMAC, VA, etc. By loosening guidelines for the credit challenged, home prices, which had typically tracked with inflation, suddenly became utterly detached from reality. At first, there was a 1-2% difference between the rise of home prices and that of inflation. By the time the boom was in full swing, the difference was around the 15-17%. What's more, there are plenty of historical precedents for the adverse effects of wholesale government intervention in the real estate markets. Japan for one in the late 80s. Spain is going through it right now. Australia tried the same thing at the end of the 19th Century, and wound up taking a 10% haircut to their GDP as a result.
The vacancy rate in Beijing in housing is roughly 30%, which is three to six times that of market-driven countries. Typical vacancy rate in even developing countries is in the 5-10% range. If the Chinese were anything approaching a market-driven economy, rational investors would have looked at these numbers years ago and said, "Too rich for my blood." Instead, the building continued without the first thought of whether or not there would be an actual long-term market for all this real estate, a fact doubly underscored by China's rock-bottom fertility rate.
Even more telling is the proposed value of the real estate, which is completely, utterly out of whack from the consumer's ability to buy. In many cities such as Shanghai and Beijing, the housing price/income ratio is around 30-1 at the moment. At the stratospheric peak of the Japanese property bubble, the same ratio was 16-1. And at the height of the real estate bubble in the United States, the ratio was 5-1. That number has since subsided to a far more rational 3.3-1.
In short, even if Chinese middle-class incomes continue to rise at their present rate (Which they most assuredly will not), it will take at least another decade before the price/income ratio even manages to equal that of Japan in 1989. And we all know what happened to Japan that year. Their economy has yet to recover from that debacle 24 years later.
What's more, the excess housing and commercial property will take years for the market to absorb even if the Chinese stopped building tomorrow -- possibly more so, given how the working class population of China is about to undergo a precipitous decline. Then what happens? Are you going to take 25% of the Chinese economy and simply ask them to stop working? Do you understand how distorted their economy really is?
Then of course there's the problem that comes from the squandered investment dollars stuck in all this real estate. Real estate that the market didn't need and now will be a complete write-off.
When you sink millions of dollars into property development, you have to look at three things: The anticipated absorption rate, the expected market, and the anticipated rate of return. It is obvious that the wave of building in China never looked at any of these things, and the resulting bust will be nothing short of catastrophic. It's going to make the real estate bust in America in 2008 look positively mild by comparison. It will shake the underpinnings of the Chinese economy (And its credit markets) to the core, challenging banking, insurance, manufacturing, you name it.
The best differentiation I've heard between a recession and a depression is this: A recession is essentially a price adjustment, while a depression is a balance sheet adjustment. If this definition is truly accurate, then there will be a massive, unprecedented dislocation of the Chinese economy as literally trillions of of dollars of non-performing assets have to be purged from the books. Severe social disruption, even revolution and civil war, are in the cards. God knows what the Chinese leadership will do to maintain the reins of power. Chances are, it will challenge the entire world.
This explains why so many Chinese millionaires and billionaires are getting their money out of the country as quickly as possible. Because if China were really such a safe bet, why aren't they investing that money at home?
OMG, here we go again...another 'expert' predicting the coming collapse of China. If I only had a dollar for every one of these bozos that came along. I love the bit about how China will 'challenge the world'. Gee, the Yellow Peril all repackaged for the 21st Century!
Look, the vacant properties in China are those where developers bet on an upscale Chinese/foreigner high-end market. Why? Because that's how they make the most profit. Most builders in China are out to make as quick and as much a buck as possible. Affordable, reasonably priced housing in China is selling like hot cakes. The vacancy rates in these types of residence is far lower and is the same or lower than other countries.
So yeah, alot of these luxury developers are going to go bankrupt. So what? These high-end units will come down in price and people will buy them. Or they'll get torn down and replaced with less expensive homes people will buy. The market will force an adjustment. Nothing to see here, move along.
The other 'revelation'--that Chinese rich are moving money out of the country, has nothing to do with anything he wrote. It has all to do with that rich Chinese have the means and ability to get out and are doing so--primarily for their children's sakes. It's all about the abysmal environment in China and the ultra competitve education. People are also tired of corruption. It has nothing to do about lack of economic opportunity, especially for the rich--after all, they got rich in China in the first place. Most of these guys send the wife and kid abroad while they remain in China doing business.
Quote:
Originally Posted by cpg35223
he vacancy rate in Beijing in housing is roughly 30%, which is three to six times that of market-driven countries. Typical vacancy rate in even developing countries is in the 5-10% range. If the Chinese were anything approaching a market-driven economy, rational investors would have looked at these numbers years ago and said, "Too rich for my blood." Instead, the building continued without the first thought of whether or not there would be an actual long-term market for all this real estate, a fact doubly underscored by China's rock-bottom fertility rate.
Even more telling is the proposed value of the real estate, which is completely, utterly out of whack from the consumer's ability to buy. In many cities such as Shanghai and Beijing, the housing price/income ratio is around 30-1 at the moment. At the stratospheric peak of the Japanese property bubble, the same ratio was 16-1. And at the height of the real estate bubble in the United States, the ratio was 5-1. That number has since subsided to a far more rational 3.3-1.
In short, even if Chinese middle-class incomes continue to rise at their present rate (Which they most assuredly will not), it will take at least another decade before the price/income ratio even manages to equal that of Japan in 1989. And we all know what happened to Japan that year. Their economy has yet to recover from that debacle 24 years later.
What's more, the excess housing and commercial property will take years for the market to absorb even if the Chinese stopped building tomorrow -- possibly more so, given how the working class population of China is about to undergo a precipitous decline. Then what happens? Are you going to take 25% of the Chinese economy and simply ask them to stop working? Do you understand how distorted their economy really is?
Then of course there's the problem that comes from the squandered investment dollars stuck in all this real estate. Real estate that the market didn't need and now will be a complete write-off.
When you sink millions of dollars into property development, you have to look at three things: The anticipated absorption rate, the expected market, and the anticipated rate of return. It is obvious that the wave of building in China never looked at any of these things, and the resulting bust will be nothing short of catastrophic. It's going to make the real estate bust in America in 2008 look positively mild by comparison. It will shake the underpinnings of the Chinese economy (And its credit markets) to the core, challenging banking, insurance, manufacturing, you name it.
The best differentiation I've heard between a recession and a depression is this: A recession is essentially a price adjustment, while a depression is a balance sheet adjustment. If this definition is truly accurate, then there will be a massive, unprecedented dislocation of the Chinese economy as literally trillions of of dollars of non-performing assets have to be purged from the books. Severe social disruption, even revolution and civil war, are in the cards. God knows what the Chinese leadership will do to maintain the reins of power. Chances are, it will challenge the entire world.
This explains why so many Chinese millionaires and billionaires are getting their money out of the country as quickly as possible. Because if China were really such a safe bet, why aren't they investing that money at home?
OMG, here we go again...another 'expert' predicting the coming collapse of China. If I only had a dollar for every one of these bozos that came along. I love the bit about how China will 'challenge the world'. Gee, the Yellow Peril all repackaged for the 21st Century!
Look, the vacant properties in China are those where developers bet on an upscale Chinese/foreigner high-end market. Why? Because that's how they make the most profit. Most builders in China are out to make as quick and as much a buck as possible. Affordable, reasonably priced housing in China is selling like hot cakes. The vacancy rates in these types of residence is far lower and is the same or lower than other countries.
So yeah, alot of these luxury developers are going to go bankrupt. So what? These high-end units will come down in price and people will buy them. Or they'll get torn down and replaced with less expensive homes people will buy. The market will force an adjustment. Nothing to see here, move along.
The other 'revelation'--that Chinese rich are moving money out of the country, has nothing to do with anything he wrote. It has all to do with that rich Chinese have the means and ability to get out and are doing so--primarily for their children's sakes. It's all about the abysmal environment in China and the ultra competitve education. People are also tired of corruption. It has nothing to do about lack of economic opportunity, especially for the rich--after all, they got rich in China in the first place. Most of these guys send the wife and kid abroad while they remain in China doing business.
I wouldn't describe myself as an expert, but I've been dealing with the finance and real estate sectors for quite a while. I was standing on a chair shouting "get out! Get out!" to anyone in the sector who would listen beginning in 2004. Several did and got out with their skins intact. Others didn't and went on to file for bankruptcy. The numbers don't lie either in terms of ratios or demographics. To ignore them is just the height of stupidity. Likewise, it is extremely foolish to look at past trends and use that to extrapolate future expectations.
The vacancy rate in Beijing in housing is roughly 30%, which is three to six times that of market-driven countries. Typical vacancy rate in even developing countries is in the 5-10% range. If the Chinese were anything approaching a market-driven economy, rational investors would have looked at these numbers years ago and said, "Too rich for my blood." Instead, the building continued without the first thought of whether or not there would be an actual long-term market for all this real estate, a fact doubly underscored by China's rock-bottom fertility rate.
Beijing does not represent China though. It is the most expensive city in China just like Manhattan of NYC.
An average American cannot afford to own a property in Manhattan either.
The 'bubble' that exists affects only a relatively small part of the housing market--the luxury high end--because that is where the majority of developers have targeted--just like in the West, that is where the greatest profits lie. This has skewed the ratios you are relying on in your analysis. It's not a real bubble because:
Vacancy rates for affordable residential apartments and affordable housing is quite low. These units are selling briskly. Hundreds of millions have moved into the cities in the past 20 years. They need places to live.
The high end bubble will burst, and many developers will go bust. That is not a bad thing. More capital to flow to where the market needs it: affordable housing for middle and working classes.
Demographics for housing are actually good. China's middle class is still growing. Most people aren't even middle class yet. There is a market for them, and developers will eventually move to meet it.
Quote:
Originally Posted by cpg35223
I wouldn't describe myself as an expert, but I've been dealing with the finance and real estate sectors for quite a while. I was standing on a chair shouting "get out! Get out!" to anyone in the sector who would listen beginning in 2004. Several did and got out with their skins intact. Others didn't and went on to file for bankruptcy. The numbers don't lie either in terms of ratios or demographics. To ignore them is just the height of stupidity.
The 'bubble' that exists affects only a relatively small part of the housing market--the luxury high end--because that is where the majority of developers have targeted--just like in the West, that is where the greatest profits lie. This has skewed the ratios you are relying on in your analysis. It's not a real bubble because:
Vacancy rates for affordable residential apartments and affordable housing is quite low. These units are selling briskly. Hundreds of millions have moved into the cities in the past 20 years. They need places to live.
The high end bubble will burst, and many developers will go bust. That is not a bad thing. More capital to flow to where the market needs it: affordable housing for middle and working classes.
Demographics for housing are actually good. China's middle class is still growing. Most people aren't even middle class yet. There is a market for them, and developers will eventually move to meet it.
Yes, yes. This time it's different. I've heard this all before.
Yes, yes. This time it's different. I've heard this all before.
You gotta be kidding. I've been listening to you "China is going to collapse!" types since 1989. If only I had a dollar for each of you.
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