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China's Housing Market Crash About To Start?

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Hi guys, I've been looking to purchase properties in China but haven't as yet. I too think that in some areas, prices are a bit more than I would like to pay. However, this may just be me feeling sore at having not bought a couple of years ago when I had the chance. Notwithstanding, I would like to list some differences for you between the Chinese and UK property markets.

1. It is very hard to do BTL in China, especially in big cities. Reason being that in order to buy your first property you need to have about a 30% deposit. For your second property you need 60%, and I think for your third property you need a whopping 90% deposit, however you might be barred from biying more than two properties now, the rules change so fast.

2. The retail banks are stricter and always have been on lending to buy property. The deposit of 30% is historically the norm. Also, you won't get interest free loans or ARMs either. Standard repayment mortgages at SVR are the order of the day. WHere are the liar loans here?

3. Taking data from your graphs above, in the second chart, it seems that the latest price per sqm is about 10,000 CNY which is about £1,000. In the UK, an average 1/2 bed flat is about 60 sqm and costs about £200,000 according to this BBC link. So that's £3,3333 per sqm in the UK compared to China's £1,000 per sqm. Still a little bit toppy in China but it's not like stratospheric now.

4. Many of the properties in the big Chinese cities are not bought by local people but by overseas Chinese and other foreigners for various motives. If the property market collapses, it will be these "foreigners" like me who will get burnt. Not good, but not terribly damaging for China either. In fact, there has been a law passed these last couple of weeks that prevents foreigners from buying more than one property.

5. The Chinese property market is more dynamic than the UK one, last year in some areas of Beijing, property fell by about 20-40% in a couple of months. Since then, it has recovered. The point is that there isn't this war of attrition between buyers and sellers as here in the UK where a house price crash can last a decade. When it comes in China, it will probably all be over within half a year allowing scarce resources and money to be reallocated faster. I can tell you which situation I would rather have

Best,

L

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3. Taking data from your graphs above, in the second chart, it seems that the latest price per sqm is about 10,000 CNY which is about £1,000. In the UK, an average 1/2 bed flat is about 60 sqm and costs about £200,000 according to this BBC link. So that's £3,3333 per sqm in the UK compared to China's £1,000 per sqm. Still a little bit toppy in China but it's not like stratospheric now.

I agree with the basic thrust of your argument (a refreshing change!) though I would say

1. What exactly are the rules for foreigners buying property in China? I thought it was extremely difficult?

2. I wouldn't use BBC data for house prices and I think your comparison is flawed

3. When I lived in Beijing (some 4 years ago now - so probably well out) your average office worker was on 3000 to 4000 RMB/mth (£300 to £400). I think this brings the affordibility of £1,000 sq/m into sharp relief, though this is tempered somewhat as you say by Chinese lending practices.

But you are right in saying comparisons between the UK and Chinese property markets are difficult, if not redundant.

Edit:

Coming back to it, I would argue a more sensible metric of UK house price/sq m would be to say the average house size is around 120 sq m (reasonably sized 3 bed semi) and costs £167k. This would work out at £1400. So the Chinese are paying a third less on a fifth of the wage.

Edited by FaFa!

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I agree with the basic thrust of your argument (a refreshing change!) though I would say

1. What exactly are the rules for foreigners buying property in China? I thought it was extremely difficult?

2. I wouldn't use BBC data for house prices and I think your comparison is flawed

3. When I lived in Beijing (some 4 years ago now - so probably well out) your average office worker was on 3000 to 4000 RMB/mth (£300 to £400). I think this brings the affordibility of £1,000 sq/m into sharp relief, though this is tempered somewhat as you say by Chinese lending practices.

But you are right in saying comparisons between the UK and Chinese property markets are difficult, if not redundant.

Edit:

Coming back to it, I would argue a more sensible metric of UK house price/sq m would be to say the average house size is around 120 sq m (reasonably sized 3 bed semi) and costs £167k. This would work out at £1400. So the Chinese are paying a third less on a fifth of the wage.

1. I think if you are a foreigner you have to be resident for over a year before you can buy a property and I know that they will charge you much more in transaction costs than if you were a local.

2. ok, the BBC figure is a bit high, I'm just going to estimate myself. I reckon that a medium sized 2 bed flat on average is going to set you back at least £120,000. So that's £120,000/60sqm = £2,000 which is still double the UK China. But let's not argue the toss here, Chinese property is a bit expensive if you are an average local resident

Best,

L

Edit : for the strikethrough

Edited by Luminist

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I think the main differnece between China and the UK is that much more of it's empty.

Two things, the first is do you know why a lot of it is empty and is this the same reason why a property in the UK is empty. Secondly, on a per capita basis are you sure that there are more empty homes in China than the UK?

Best,

L

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1. I think if you are a foreigner you have to be resident for over a year before you can buy a property and I know that they will charge you much more in transaction costs than if you were a local.

Thanks for clarifying

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Guest

2. ok, the BBC figure is a bit high, I'm just going to estimate myself. I reckon that a medium sized 2 bed flat on average is going to set you back at least £120,000. So that's £120,000/60sqm = £2,000 which is still double the UK China. But let's not argue the toss here, Chinese property is a bit expensive if you are an average local resident

Best,

L

Edit : for the strikethrough

Errrm, China GDP PPP Per capita = 3,735 USD, UK GDP PPP Per Capital = 35,257 USD. Lets round off a little here and there and just say UK = 10x China GDP PPP PC. So a touch more than 'a bit expensive' for an average local.

Don't like GDP PPP Per Capital , how about GNI without PPP, UK: 45,390 USD : China 3,590 USD

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Hi guys, I've been looking to purchase properties in China but haven't as yet. I too think that in some areas, prices are a bit more than I would like to pay. However, this may just be me feeling sore at having not bought a couple of years ago when I had the chance. Notwithstanding, I would like to list some differences for you between the Chinese and UK property markets.

1. It is very hard to do BTL in China, especially in big cities. Reason being that in order to buy your first property you need to have about a 30% deposit. For your second property you need 60%, and I think for your third property you need a whopping 90% deposit, however you might be barred from biying more than two properties now, the rules change so fast.

2. The retail banks are stricter and always have been on lending to buy property. The deposit of 30% is historically the norm. Also, you won't get interest free loans or ARMs either. Standard repayment mortgages at SVR are the order of the day. WHere are the liar loans here?

3. Taking data from your graphs above, in the second chart, it seems that the latest price per sqm is about 10,000 CNY which is about £1,000. In the UK, an average 1/2 bed flat is about 60 sqm and costs about £200,000 according to this BBC link. So that's £3,3333 per sqm in the UK compared to China's £1,000 per sqm. Still a little bit toppy in China but it's not like stratospheric now.

4. Many of the properties in the big Chinese cities are not bought by local people but by overseas Chinese and other foreigners for various motives. If the property market collapses, it will be these "foreigners" like me who will get burnt. Not good, but not terribly damaging for China either. In fact, there has been a law passed these last couple of weeks that prevents foreigners from buying more than one property.

5. The Chinese property market is more dynamic than the UK one, last year in some areas of Beijing, property fell by about 20-40% in a couple of months. Since then, it has recovered. The point is that there isn't this war of attrition between buyers and sellers as here in the UK where a house price crash can last a decade. When it comes in China, it will probably all be over within half a year allowing scarce resources and money to be reallocated faster. I can tell you which situation I would rather have

Best,

L

Sounds far more sensible than the UK. Thanks for the info. I am one that doesn't believe in the China crash anytime soon.

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Errrm, China GDP PPP Per capita = 3,735 USD, UK GDP PPP Per Capital = 35,257 USD. Lets round off a little here and there and just say UK = 10x China GDP PPP PC. So a touch more than 'a bit expensive' for an average local.

Don't like GDP PPP Per Capital , how about GNI without PPP, UK: 45,390 USD : China 3,590 USD

Agreed but i guess you could divide the overcapacity by the entire population and it would look pretty small.

I think China has more Billionaires than the US these days.

I think the GDP of Chinese expats would make them the seventh largest economy in the world.

The Chinese seem to have been succesful at adding capacity to dampen bubbles I know its a concept we have trouble with.

It will be a bubble one day but nowhere near at the mo and luminists post seems to suggest that a lot of the buying is not on credit like here.

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Guest

Sounds far more sensible than the UK. Thanks for the info. I am one that doesn't believe in the China crash anytime soon.

Sure 1m2 for just under half a years wage sounds very reasonable :blink:

Edit: but yeah, I'll give you this bit is more sensible

1. It is very hard to do BTL in China, especially in big cities. Reason being that in order to buy your first property you need to have about a 30% deposit. For your second property you need 60%, and I think for your third property you need a whopping 90% deposit, however you might be barred from biying more than two properties now, the rules change so fast.

Just not the prices.

Edited by Guest

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Problem with China is the vast migration of people from rurals into cities.. its an uneven growth there... hence its very important to focus on city based supply/demand graphs

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Say what you will about the citizens of China, the caveat being that their government can do whatever they want. Ours, however, can not, and our already waning power will decay as rapidly as our energy reserves.

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Debt levels have risen but from very low base, it is pointless averaging out income ratios to house prices in China as its actually the top 20% of earners that buy property which brings the house price to income ratio down to a very healthy 4.6ish , the same as oz

Well I may be old fashioned but before the current round of HPI madness in the UK P/E ratios of 4.6 were considered bubble territory.

The UK house price boom of the 1980s topped out with average multiples of below 5

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  • 145 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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