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Thread: Chinese housing bubble obviously needs a boost: Shanghai Eases Home Purchase Restrictions

  1. #1

    Post Chinese housing bubble obviously needs a boost: Shanghai Eases Home Purchase Restrictions

    Shanghai Eases Home Purchase Restrictions
    Shanghai eased home purchase restrictions to allow a broader pool of buyers to purchase a second property in China’s financial center, Shanghai Securities News reported today.
    The city loosened its definition of locals to let residence permit holders who have lived in the city for at least three years to buy a second home, the official newspaper affiliated with state-run Xinhua news agency said, citing an unidentified official of the city’s housing regulator. It previously limited the second-home option to locals, or those born in the city or who worked for an extended period of time and were officially recognized as locals, without specifying guidelines for non-locals.
    “This is certainly a measure of easing,” said Jack Gong, a Hong Kong-based analyst at Jefferies Group Inc. “But the easing by the local government doesn’t mean the central government will loosen its property controls.” Officials from Shanghai and Beijing said earlier this year they plan to keep their home purchase restrictions in 2012. China won’t waver on its real estate controls and efforts to bring prices down to a reasonable level to ensure fairness and stability, Premier Wen Jiabao said on Feb. 12.
    The latest easing may boost the city’s home sales by 20 percent to 30 percent, according to Jefferies.
    The gauge tracking property stocks on the Shanghai Composite Index surged 2.5 percent, set for the highest since Nov. 4 and the biggest gain among five industry groups on the benchmark. Poly Real Estate Group Co., the nation’s second- biggest developer, climbed 2.6 percent to 11.27 yuan as of 10:06 a.m., set for the highest since Aug. 26.
    Most Critical
    The report came a week after the eastern Chinese city of Wuhu reversed a decision to relax property curbs. The mid-sized city in Anhui province had planned to waive a deed tax and subsidize some purchases on Feb. 9, becoming the first Chinese city this year to signal its intention to ease property measures.
    It is not clear if the Shanghai easing will hold because the restriction on home purchases “is the most critical” tightening policy for the central government, Johnson Hu, a Hong Kong-based analyst at CIMB-GK Securities Research, said in a note to clients today.
    About 671,000 residents in the city of 20 million were issued residence permits as of March 2009, China Business News reported today, citing the local statistics bureau. Residents with at least a year of tax records in the city are allowed to buy one home.
    China’s January new home prices recorded their worst performance in at least a year, with none of the 70 cities monitored by the government posting gains. Shanghai’s housing values fell 0.1 percent in January from December, the fourth month of declines, the statistics bureau said Feb. 18.
    http://www.bloomberg.com/news/2012-0...trictions.html



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  3. #2

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    The Chinese housing bubble is not actually really a bubble. Overheated in the short term? Sure. Bubble? No.

    First of all, most homeowners put 30-50% down - they are no where near the leverage of the rest of the world.

    Second, the Chinese are RAPIB savers. Many emerging middle class folks would start to swallow up lower priced homes and push the market back up.

    Third, think of how many people live there and the fact that they are emerging as a wealth producing nation. The ghost cities will be filled or destroyed (filled I hope) - it won't have a long lasting POP factor on Chinese real estate. Chinese real estate will remain in a long term bull market so long as there isn't a global castastrophe.

  4. #3

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    Quote Originally Posted by Seraphim View Post
    The Chinese housing bubble is not actually really a bubble. Overheated in the short term? Sure. Bubble? No.

    First of all, most homeowners put 30-50% down - they are no where near the leverage of the rest of the world.

    Second, the Chinese are RAPIB savers. Many emerging middle class folks would start to swallow up lower priced homes and push the market back up.

    Third, think of how many people live there and the fact that they are emerging as a wealth producing nation. The ghost cities will be filled or destroyed (filled I hope) - it won't have a long lasting POP factor on Chinese real estate. Chinese real estate will remain in a long term bull market so long as there isn't a global castastrophe.
    I disagree. Imho it's a bubble and a quite huge one. It's a national problem and not a golbal one because there was no securitization and less leverage, though. I agree on that.
    The goverment has agressively stimulated construction after 2008 to get all the unemployed back to work and thereby created a massive oversupply of real estate, ie malinvestment. Population is already topping at 1.4 billion due to the one child policy. It will start to decline in about 15 years. So demographics won't be supportive. Wealth creation might be, but remember: If people buy an empty appartment, they leave another one empty. So the oversupply stays. Rents will definitely fall, putting pressure on prices as well. In the major cities, prices have fallen arround 20-30% last year. This is massive. Examples from other countries show that real estate prices never just fall for a year after such a plunge. Chinese real estate developers (e.g. China Vanke, Poly Real Estate) have seen earnings drop as much as 40 %. Overall (not just developers), the Shanghai Composite looks pretty weak since early 2011, so something is wrong over there. It's just difficult to figure out what the exact reasons are, because there aren't many reliable sources of information.

  5. #4

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    They have so many impoverished citizens whose quality of life will go up as domestic demand for consuption goes up (once the USD/REM link is broken)...

    As I said, I think their housing market is overheated by a fair bit, but not from a long term perspective. 1-2 years? Yeah sure...but there are SOOOO many Chinese people who will soon have access to all these appartments etc that I don't see their real estate having a large correction/default glut like in the USA. Their demographics may be levelling off, but levelling off from 1.4 Billion 1) takes DECADES 2) short of a catastrophe, many of their poorer and lower middle class folks will gain access to the housing markets...

    The Chinese middle class has MORE people than the entire US population. What happens when that class expands (as it is already)? HOUSING DEMAND.

    I'm with Jim Rogers on this one. Short term, over heated. Long term, the great Chinese bull is very much intact.


    Quote Originally Posted by swissaustrian View Post
    I disagree. Imho it's a bubble and a quite huge one. It's a national problem and not a golbal one because there was no securitization and less leverage, though. I agree on that.
    The goverment has agressively stimulated construction after 2008 to get all the unemployed back to work and thereby created a massive oversupply of real estate, ie malinvestment. Population is already topping at 1.4 billion due to the one child policy. It will start to decline in about 15 years. So demographics won't be supportive. Wealth creation might be, but remember: If people buy an empty appartment, they leave another one empty. So the oversupply stays. Rents will definitely fall, putting pressure on prices as well. In the major cities, prices have fallen arround 20-30% last year. This is massive. Examples from other countries show that real estate prices never just fall for a year after such a plunge. Chinese real estate developers (e.g. China Vanke, Poly Real Estate) have seen earnings drop as much as 40 %. Overall (not just developers), the Shanghai Composite looks pretty weak since early 2011, so something is wrong over there. It's just difficult to figure out what the exact reasons are, because there aren't many reliable sources of information.

  6. #5

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    Quote Originally Posted by Seraphim View Post
    I'm with Jim Rogers on this one. Short term, over heated. Long term, the great Chinese bull is very much intact.
    There's really one really one reason I agree, but only conditionally. Chinese real estate market on the whole is in a bubble. It is very similar in some ways to ours, in that the volatility depends on where you are.

    Example 1: One of my sisters owns a home in a up-scale part of San Jose, CA, where available land is more scarce. Her house went from $770K in 2002 to $1.4M in 2007. Then came the housing crash in '08. Her property jumped down to $1.1M in '09 (based on panic sales in the area), and is now sitting at $1.28M. Hardly a dent in the fender overall.

    Example 2: My brother and another sister each owned houses in heavily overdeveloped areas that were more rural, with no real scarcity of land to speak of, and no decent proximity to any metropolitan financial centers. Talk about a speculation driven market. They were both typical of our market: over-leveraged, with second homes and second mortgages on their first homes, and pretty much wiped out, with 60-70% equity losses that turn them upside down.

    Shanghai and Beijing are major population centers. Anyone who wants to be near government money goes to Beijing, while anyone who wants to be near the pulse of commerce and that money goes to Shanghai. For as absolutely, staggeringly enormous as both cities are, they are not "overbuilt", in terms of persistent pressing demand, and influx of people wanting in. And, like Manhattan or any other sky=scrapered financial center, the value of real estate goes up dramatically as you get closer to the center.

    Even Wuxi (my Chinese "home" city in Jiangsu, near Shanghai) is a major, somewhat diversified industrial center (textiles, machining, etc.,), with a population of 6 million, and the third largest GDP in China. Any cities like these are more or less immune from a housing market crash. They'll may take a small hit, but will bounce back quickly. All the big centers like this are, I believe, more or less bubble proof.

    The vast majority of China, however, is in a MAJOR bubble - poised, I believe, to plummet fast and hard to a distant floor below them. Tons of speculation going on in areas that just never warranted overbuilding, with a lot of people believing (just as Americans did) that there's something truly magic about real estate, such that there's always someone in line willing to pay more.

    So the answer to me is yes and no, depending.

    The biggest irony of all, to me, is that the 'safest' place, economically, in a housing market collapse just happens to be THE single most dangerous place to be during an all-out currency collapse.

  7. #6

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    @StevenD:
    What about property taxes? Is this a reason why the goverment pushes real estate? I remember reading that the central government and the local goverments rely heavily on property taxes?

  8. #7

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    Quote Originally Posted by swissaustrian View Post
    @StevenD:
    What about property taxes? Is this a reason why the goverment pushes real estate? I remember reading that the central government and the local goverments rely heavily on property taxes?
    Not in China - they only instituted a first time ever property tax around this time last year, and that was stated only as an attempt to curb housing demand in specific major cities like Beijing and Shanghai. In Shanghai that was .6% on average, with a cap of 1.2%. The buzz around the expat community there (my friends anyway) is that it's going to be repealed, but who knows. Big rumor mill in China makes a sewing circle out of everybody.

    No, I think the government there pushes real estate because it provides long-lived incentive for people to work to pay for something they can actually own - which incentive means gears and engines for the economy, and other, more traditional revenue sources - ones that involves state-issued, state-controlled "Fa Piao", or commerce receipts, which are used to monitor and collect taxes.





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