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Sour Mash

Some interesting insights from China

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I lived in Shanghai in 2009, very close to people Square. 

And the quality of the buildings were very, very bad. I totally agree with what he said. So many buildings that are 20+ stories don't feel like they will be able to stay up more than 50 years. 

You just wonder how long they will be able to keep swimming naked

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15 hours ago, stormymonday_2011 said:

Simply staggering.

 

 

It makes the UK property bubble look inconsequential in comparison  ... when China bursts it´s going to be apocalyptic.

All those massive amounts of capital earned from exporting to the West (plus a ton of locally created bank credit) utterly wasted in a massive property bubble.  Classic malinvestment.

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All those empty apartments in London kinda make sense now. There's something even weirder about the Chinese psyche than the British one. How can you not see the madness of it all? Those places are worthless.

Also makes me miss my biking days :(

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love those videos. Only concerning thing, is it shows just how far the madness can go and be sustained for a reasonably long period of time 

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7 minutes ago, fru-gal said:

But how do the property developers make any money if nobody buys the apartments? 

People do buy the apartments - the buyers just plan on holding them (vacant) for a period of time and then flipping for a surefire profit down the line.

They are absolutely not concerned with living in them or renting them out as making any modifications to the raw, empty shell would hurt the resale value.

Given that there are supposedly something like 3-5 years worth of unoccupied apartments in Shenzen (ie. You could stop building now and there would be enough to meet demand for new living spaces for that time) and developers are still building like crazy and people are borrowing up to the hilt to buy them as fast as the developers can put them up, it is pretty obvious that this will all go off the rails spectacularly at some point.

 

 

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1 minute ago, Sour Mash said:

People do buy the apartments - the buyers just plan on holding them (vacant) for a period of time and then flipping for a surefire profit down the line.

They are absolutely not concerned with living in them or renting them out as making any modifications to the raw, empty shell would hurt the resale value.

Given that there are supposedly something like 3-5 years worth of unoccupied apartments in Shenzen (ie. You could stop building now and there would be enough to meet demand for new living spaces for that time) and developers are still building like crazy and people are borrowing up to the hilt to buy them as fast as the developers can put them up, it is pretty obvious that this will all go off the rails spectacularly at some point.

 

 

But who is buying them off the buyers and perpetuating the chain? Is their value based on them being continuously passed on like pass the parcel? So basically there is no intrinsic value and they are not getting any rent they are literally buying into a ponzi? Absolutely crazy. These buildings will deteriorate pretty quickly and presumably then worth very little and hard to sell on (or are crappy, crumbling blocks of flats also sought after as an investment in China)?

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i would guess its just a bubble. In china men cant be expected to find a woman without an apartment. And there is a shortage of women.

and the country has a lot of growing to do, and its living memory the times of poverty and famine. There was probably some real growth and money to be made in property... up to a point. 

The 1920's bubble was sort of based upon rapid growth, with a feeling of positivity after WW1 had finished, i don't see it as all that different. 

Im not sure how they will cope with the property bubble, they have already ditched the 1 child policy, but that will take a decade yet to transform into demand. Probably lots of schemes etc to prevent it from blowing up, trashing currency etc, make it less painful. 

Some of the ghost cities seem to have become successes, so i guess who knows. I can imagine much like previous bubbles everyone including those in power are knee deep into property, so any solution would require no lost cash amounts, property values to retain their purchase value via trashed currency. That must be the only way to move forward, massive inflation. 

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Answering Fru-gal ;)

Nah, you don't get it, people are not reselling yet or few of them.

China is kind of a new country (weird to say when it is the oldest one). Economic prosperity only started at the end of 1990's and with huge growth. It is not a mature market and people bought those places a few years ago.

Prices are set by the "shortage" of new builds, people are hoovering all they can has explained before.

And when shit will hit the fan, you can be sure the whole herd will be jumping in the pit-hole. Especially the Chinese who are behaving more like a group than our western mentality.

This is going to be spectacular.

Edited by Freki

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i did hear that some estate agents got linched and beaten up by a big group of property buyers, after the estate agent sold some flats for less than they bought them for. Not sure how the populace will cope with their own HPC. 

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Looking at Numbeo (don't know how accurate it is?) shows yields in that city below 1.5%. That roughly matches the numbers the bloke in the video mentioned. I believe the base rate in China is significantly higher. 

It's absolutely nuts even before you consider the empty apartments. Who is lending and at what rates?

 

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49 minutes ago, jiltedjen said:

Some of the ghost cities seem to have become successes, so i guess who knows.

I also hear that too, from Chinese colleagues, and I think that as long as the flow of people from rural to urban areas continues apace, this will be true for any moderately well-situated (current) ghost-cities. In that sense, a lot of the building in the '90's and '00's was actually forward-thinking, rather than a disastrous waste. That doesn't mean there wasn't a lot of speculation and profiteering, firstly from well-connected developers who got permission to build, and then (I presume) from first-owner investors who sold on to actual owner-occupiers.

48 minutes ago, Freki said:

Answering Fru-gal ;)

Nah, you don't get it, people are not reselling yet or few of them.

China is kind of a new country (weird to say when it is the oldest one). Economic prosperity only started at the end of 1990's and with huge growth. It is not a mature market and people bought those places a few years ago.

Prices are set by the "shortage" of new builds, people are hoovering all they can has explained before.

And when shit will hit the fan, you can be sure the whole herd will be jumping in the pit-hole. Especially the Chinese who are behaving more like a group than our western mentality.

This is going to be spectacular.

By and large though, I think Freki is right, and expresses the situation very cleanly; and the more likely so for the more recent developments. The few Chinese I know who own investment properties in China (I would say 2 out of 4 middle-aged Chinese that I know well) have no intention of selling; this is because they are making so much "money" from their investments. The "value" (that is to say, the price new apartments are selling for, to investors) is going up so fast, you would be "better off" holding rather than flipping. In that sense, there is only a market for new apartments, and the second hand properties (kept empty to preserve their re-sale value) only have a theoretical price right now.

One needs a large supply of inverted commas when thinking about the Chinese property market, and I can't see an obvious way that it can end well. I have an Indian colleague who inherited a building plot, many years ago, in Mumbai, and his attitude seems similar. I have not heard anything recently about the bubbles in the subcontinent, but I assume they will go the way of all flesh at almost exactly the same time as those in China.

Edited by Toast
Realised I was exaggerating numbers of investors I know.

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I saw this then saw SerpentZA as the person you mention in the video. I then laughed as some of those MUMSNET types are correct at times. That you seem to believe all things you see as confirmation bias.

I'll break this down for you:

Quite simple SerpentZA has no credibility whatsoever. 

First off he isn't an expat. He is an illegal immigrant in China. Marriage like in the UK and most countries does not afford you the right to live in that country. Why is he an illegal immigrant? It's because he doesn't qualify for a Chinese Z visa. For a Z visa you need a undergraduate degree and 2 years experience in your field of work. This all changes in September with the A+b+c tier visa (A are desirables, B are useful people C = are low skill trash). SerpentZA is a C class as he is not from UK, USA, CAN, AUS or NZ. South Africa was knocked off the list of Native English speaking nations from most Asian nations years ago.

He's a South African who failed in South Africa so moved to China to be a PUA. He worked illegally as an 'English Teacher' for several years. English teachers in China no matter what they say make not a whole lot of money. 9000RMB is typical. While there are liars who claim 10000s of RMB a month these are pure fantasy. Illegals get paid even less than this.

He is married to a traditional Chinese medicine practitioner... somebody who makes no money either.

So his rant about oh I refuse to buy a house in China is more like I don't have money to buy a house in China.

Lastly he's upset somebody high up in the CCP (Chinese communist party) considerably. Therefore once he leaves he knows that he will never enter China or ASEAN countries again. His lack of qualifications means he can't get any visa aside from a tourist visa. So he has a significant axe to grind.

 

Next?

In Asia things are different. They do not lend out willy nilly. In my home country (S Korea) you need a 45% deposit as an absolute minimum. When my father bought a home at the end of the 00s near Daegu he had to put down 76% deposit. This is normal across Asia. Hong Kong requires 50% LTV, Taiwan needs 55%. I mentioned before about my relationships failing. As a Korean to be eligible for marriage you MUST own a house. Without it you will not even be considered for dating.

The 'ghost cities' aren't ghost cities at all. It's simply future planning. S Korea built 'ghost cities' people laughed then. However this was Roh Moo-hyun planning for the future where the KTX route was to be located. These are now commuter belts like the satellite towns of London where people commute in by train (high speed train in Korea).

A good example of future planning is the mega city of Jing-Jin-Ji where Beijing, Tianjin and Heibei are to be merged into one gigantic city. People laugh when they see train stations that lead into fields or there are super modern train stations...but when you go up the stairs to the exits there is nothing there. This is future planning.

 

Exactly the same happened with many Korean cities all the infrastructure was built and plugged in first THEN came the development. On the other hand it seems the UK just builds more houses/businesses and connects the stuff to the existing infrastructure.

 

 

So don't believe all you see. As above SerpentZA has a serious agenda and an axe to grind.

 

 

 

 

 

 

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24 minutes ago, Morganite said:

So don't believe all you see. As above SerpentZA has a serious agenda and an axe to grind.

And you seem to have an agenda of your own for doing such a systematic attack on him. 

You are only claiming that collateral and deposit are legit. 

You are not answering the fact that, 

A) real estate depreciates quicker due to poor quality and maintenance

B ) There is an immediate over supply hidden by the Chinese love for bricks

C) the lack of second hand market means the price is set in a very immature market and soon I believe illiquid

So please spend less time trash talking and more discussing your point of view with proper arguments

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