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Thread: Assets bubble in China

  1. #1
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    Default Assets bubble in China

    Recently, spent time looking into the asset bubble in China. This is a bubble, huge one, the questions are to what extent the bubble will grow and when it will burst and the consequences of that, particularly to Sg.

    In US, it is only 1,000,000 properties foreclosed yearly since the subprime. In China, there are 64,000,000 vacant properties.

    I read the asset bubble in Japan, Spain, which started before US subprime, Dubai, PIIGS, and then US. All have different causes but not that different in substance. Over the East, the property bull in Jakatar, HK, China, Sg, India. This shows a great inbalance of fund flow.

    For China, cooling measures have been introduced on the LTV, bank reserves, number of property be purchased per household / foreigners, etc etc. Definitely, it needs time to cool, couple with the big supply and number of vacant properties, if anything happens, the consequences just simply beyond what I can think.

    For US, they are printing themselves out from debts and recession. The strategy will be copied by the EU countries if needed. China will find eventually the US debts they hold are worthless.

    US is the biggest debtor, with the high unemployment rate with some states at 15%, the recovery still someway to go.

    The issues are very interesting and complicated. As Sg is a very open economy, if China asset bubble burst, what will be the likely impact on Sg???

    There are many experts in this forum, view sharing is appreciated.

  2. #2
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    Quote Originally Posted by Laguna
    Recently, spent time looking into the asset bubble in China. This is a bubble, huge one, the questions are to what extent the bubble will grow and when it will burst and the consequences of that, particularly to Sg.

    In US, it is only 1,000,000 properties foreclosed yearly since the subprime. In China, there are 64,000,000 vacant properties.

    I read the asset bubble in Japan, Spain, which started before US subprime, Dubai, PIIGS, and then US. All have different causes but not that different in substance. Over the East, the property bull in Jakatar, HK, China, Sg, India. This shows a great inbalance of fund flow.

    For China, cooling measures have been introduced on the LTV, bank reserves, number of property be purchased per household / foreigners, etc etc. Definitely, it needs time to cool, couple with the big supply and number of vacant properties, if anything happens, the consequences just simply beyond what I can think.

    For US, they are printing themselves out from debts and recession. The strategy will be copied by the EU countries if needed. China will find eventually the US debts they hold are worthless.

    US is the biggest debtor, with the high unemployment rate with some states at 15%, the recovery still someway to go.

    The issues are very interesting and complicated. As Sg is a very open economy, if China asset bubble burst, what will be the likely impact on Sg???

    There are many experts in this forum, view sharing is appreciated.
    the problem with china is that rental yield is zero, and negative if you count the management fee and such. My wife's friends own 15 properties in chungking, and she could get renters for none of them.

    One of the developers in Singapore has a significant presence in China. I would not hold shares of that company.

    if china's real estate has a hard landing, liquidity in Singapore would be wiped out. and then watch out for properties favored by speculators, which are "luxury" condos in prime districts. properties in OCR would be less affected, as they are supported by fundamentals.
    Last edited by stalingrad; 07-12-10 at 09:25.

  3. #3
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    There is quite a lot of empty apartments in China now. Pray hard China does not burst so soon. Singapore will go down with it.

  4. #4
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    Would be good if someone could post links of credible articles written about this topic here. Worth reading.
    I heard that because of the huge reserve that China has... this bubble can get so so big but yet will not burst.

  5. #5
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    always been toking abt bubble in china ....first i heard was in 2006....considered burst in 2008-09?? there is a correction..

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    Actually China's price to income ratio is still healthier than Singapore or HK. HK and Singapore is around 15x - highest in the world. This means a person who makes 100k per annum on average buys a 1.5 million property - 15x his income. China is around 13x. The power of leverage. Sometimes I really dunno why people take up 15x of debt but life's like that. As to empty apartments, Singapore will have quite a bit of empty apartments as well as more TOP next year. Many developers are merely hoarding units to keep prices artificially high.

    If I may add, China has more stringent lending criteria - LTV is only 60% and many people buy with cash. So if China is a bubble, what is Singapore? With LTV of 80% and 15x income?

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    some say china richies buy ppty in full cash....can afford to leave it vacant....how true i duno

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    i like that....amazing...this world really amazes...
    Quote Originally Posted by Wild Falcon
    Actually China's price to income ratio is still healthier than Singapore or HK. HK and Singapore is around 15x - highest in the world. This means a person who makes 100k per annum on average buys a 1.5 million property - 15x his income. China is around 13x. The power of leverage. Sometimes I really dunno why people take up 15x of debt but life's like that. As to empty apartments, Singapore will have quite a bit of empty apartments as well as more TOP next year. Many developers are merely hoarding units to keep prices artificially high.

    If I may add, China has more stringent lending criteria - LTV is only 60% and many people buy with cash. So if China is a bubble, what is Singapore? With LTV of 80% and 15x income?

  9. #9
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    Most of them i know loves to boast.
    I am sure most of us come across most of them.
    Checkout the definition for "boast"
    Most but not ALL (incase i get )

    Quote Originally Posted by devilplate
    some say china richies buy ppty in full cash....can afford to leave it vacant....how true i duno

  10. #10
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    singapore so so small and china is so big. actually I find it is quite difficult to compare. many other factors counts. we probably capture the 1% riches around the world who no need the money but just dump their money here. up or down they dont really care.....

  11. #11
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    @ Devilplate

    Living in China for 10 years now, and owning properties in Shanghai and Chongqing, I can absolutely confirm what you wrote there

    @ Stalingrad

    How can rental yield be ZERO ? In Chongqing (or Chunking, my wife is from there btw), its probably because a) the rental market is small, most ppl prefer to own, and expats / foreigners which are often the targetmarket in cities like Beijing and Shanghai, are only slowly moving to CHQ. If your aquaintance has 15 properties, he or she will have bought for capital appreciation only.

    Fyi, I just sold a condo in Shanghai (which doubled in the last 5 years in price and where we lived in, but now moved due to upgrade), and the buyer will rent it, yield will be about 2.5% ..... you can get better or worse deals, depending on where and what you buy, same as in Singapore

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    Quote Originally Posted by devilplate
    some say china richies buy ppty in full cash....can afford to leave it vacant....how true i duno
    I don't know bout Property but yes to car. My friend is a Merc manager in Beijing, told me Cina bring a big bag full of cash for S class... mostly S Class....

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    My view is, China property will burst only if the interest rate climb back up, imagine those who hold multiple loan will feel the pain. To stop the pinch they have only 1 option and tht is to SELL.

    However, those who bought with cash, need not worry so much on the interest rate, but they will see a paper lost only...if anti corruption or tax authority find them unclean...they got 1 option...SELL.

    If i were China, i will sell USD debts in open market and flood the bonds.At the same time, support Noth Korea on the war with south and US.Benefits is it will devalue USD even more..until certain extend of deficit in US GDP due to military spending and currency devalue..China can go in and aquire Co..,states,land ....from US. Just like playing poker..just my thought

  14. #14
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    Default Slow Leak

    What we can hope is a slow leak for the bubble. The stake is too high: most government officers are owning multiple properties - and nothing else!

    http://www.bloomberg.com/news/2010-0...-andy-xie.html

    I am more worried about Singapore. Just recall the HDB queue of 100K units suddenly disappeared when HDB price went down 10 years ago. Now we are hoping a vitual queue for Private property of 80K units. When price confirms going down trend one day, the queue will disappear even quicker.

    Thanks,
    Richard
    Last edited by richwang; 07-12-10 at 20:55.

  15. #15
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    Quote Originally Posted by richwang
    What we can hope is a slow leak for the bubble. The stake is too high: most government officers are owning multiple properties - and nothing else!

    http://www.bloomberg.com/news/2010-0...-andy-xie.html

    I am more worried about Singapore. Just recall the HDB queue of 100K units suddenly disappeared when HDB price went down 10 years ago. Now we are hoping a vitual queue for Private property of 80K units. When price confirms going down trend one day, the queue will disappear even quicker.

    Thanks,
    Richard
    thanks for the bloomberg article
    Andy Xie has quite a few articles, very good writer

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    Quote Originally Posted by jasonyap
    I don't know bout Property but yes to car. My friend is a Merc manager in Beijing, told me Cina bring a big bag full of cash for S class... mostly S Class....

    i always wonder ....

    china is the factory of the world .. if they can manufacture Eggs, Milk powder, etc etc .. what cant they manufacture ?


    i wonder, is there, OR how much of those cash they use for big item purchases are not manufactured somewhere in the remote part of china ??

  17. #17
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    Quote Originally Posted by joelx
    My view is, China property will burst only if the interest rate climb back up, imagine those who hold multiple loan will feel the pain. To stop the pinch they have only 1 option and tht is to SELL.

    However, those who bought with cash, need not worry so much on the interest rate, but they will see a paper lost only...if anti corruption or tax authority find them unclean...they got 1 option...SELL.

    If i were China, i will sell USD debts in open market and flood the bonds.At the same time, support Noth Korea on the war with south and US.Benefits is it will devalue USD even more..until certain extend of deficit in US GDP due to military spending and currency devalue..China can go in and aquire Co..,states,land ....from US. Just like playing poker..just my thought
    sometime last mth .. on CNBC .. they were talking aboiut the possibilty of selling some state parks, national monuments etc ..

    like selling Statue of Liberty, the Rushmore, Yellow stone park , etc etc ..

  18. #18
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    Quote Originally Posted by proud owner
    sometime last mth .. on CNBC .. they were talking aboiut the possibilty of selling some state parks, national monuments etc ..

    like selling Statue of Liberty, the Rushmore, Yellow stone park , etc etc ..
    Ohh..Like playing Monopoly..But seriously not to my surprise they need to sell something but again who is going to buy Statue of Liberty?haha got ROI?.

    Imagine if US keep printing $ and value keep droping, If you own a company where would you like to base? US or outside US. The only things that ppl still stay in US is because of its Free trade/Freedom of trade.Not so much rules to follow.But Asian Country is catching up on tht too.Next 10years we should able to see more US base Co either shift to other part of the world or aquired by foreign country.

  19. #19
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    Quote Originally Posted by Wild Falcon
    Actually China's price to income ratio is still healthier than Singapore or HK. HK and Singapore is around 15x - highest in the world. This means a person who makes 100k per annum on average buys a 1.5 million property - 15x his income. China is around 13x. The power of leverage. Sometimes I really dunno why people take up 15x of debt but life's like that. As to empty apartments, Singapore will have quite a bit of empty apartments as well as more TOP next year. Many developers are merely hoarding units to keep prices artificially high.

    If I may add, China has more stringent lending criteria - LTV is only 60% and many people buy with cash. So if China is a bubble, what is Singapore? With LTV of 80% and 15x income?
    I think the majority of the property owners in singapore did not pay 15x lah. Most of them bough the properties when the prices are low.

    Example, a couple with 60k income per annum usually buys a HDB of around 400k?

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