Is Jim Chanos Right About A China Real Estate Bubble?

Hedge fund manager James Chanos recently sat down with Charlie Rose to discuss his short China thesis. You can watch the interview here, and read the transcript here. An excerpt:

JAMES CHANOS: Well, again, the perception seems to be that China will grow into this real estate problem. But there’s a problem with that argument, and that is the real estate that’s being built is not being built for the masses. This is not affordable housing for the middle-class. This is high-end condos in major urban areas and high-end office buildings.

Just to give you an idea, right now construction costs in China are starting to hit $100 to $150 in some of the cities. That doesn’t sound a lot by western standard — per square foot, by the way. The typical Chinese condo is 100 square meters, about 1,100 square feet.

So that means a condominium that is basically presented to you with no floors, no walls, no appliances, costs the average Chinese two-income couple $100 to $150 U.S. Now, that Chinese two-income couple in their 30s probably makes combined $7,000 or $8,000 a year.

Now, you do the math. Incomes are about $3,500 per capita in China, urban areas slightly higher. Even if they were making $10,000 to $15,000 a year, you couldn’t carry a $150,000 condo. This is very similar to someone making $40,000 in the U.S. at the height of our bubble and buying an $800,000 house. And we know how that ended.

Chanos, the founder of Kynikos Associates Ltd, has a terrific track-record. He makes some compelling points, especially about commercial office and retail real estate. However, I am not convinced by his bearishness about residential property, and I think he is making a mistake by looking at China as one unified real estate market.  There are significant variances between cities, and I think Chanos is underestimating the poor quality of current housing (has he spent a night in local Beijing housing yet?), the pent up demand to upgrade, and the increasing urbanization of rural suburbs.

In the case of Beijing, residential real estate (disclosure: I have property inside the Third Ring Road) may be getting ahead of itself but not yet be a bubble. That said, I would not be a buyer right now given the policy risk. Here is why I think Beijing may not yet be in a crazy bubble:

1. Beijing is the capital city of the largest country in the world with the fastest growing major economy;

2. Beijing’s housing market is really a nationwide housing market. Every person with means in China wants to buy in Beijing. Beijing is the center of power, it has the best education system in the country and it has the best health system; UPDATE2: This point may not hold much water for a while, as new rules limit purchases of non-residents-never underestimate policy risk in China.

3. As the capital of China Beijing attracts rich buyers from the global Chinese diaspora;

4. As I wrote recently, the skyrocketing relocation compensation costs within central Beijing’s make any new constructive extremely expensive. UPDATE1: News reports today state that the relocation compensation for the Tongzhou New City exceeds 15,000 RMB/m;

5. Prime developments inside the Third Ring Road are still less than $1000 square foot equivalent; compare to similar locations in New York, Tokyo or London;

6. Using official statistics to calculate average Beijing income to show that real estate is overpriced is misleading. Rich people from all over China buy here, and the official income statistics understate how much money Beijingers have at their disposal;

7. Beijing’s population just hit 22 million, a number it was supposed to reach in 2020;

8. We are starting to see the emergence of a Greater Beijing Metropolitan Area, along the lines of the Greater Tokyo Area, stretching east, north and south into Hebei and Tianjin. The eastern expansion of CBD and the Tongzhou New City (video here, in Chinese but with lots of pictures) are just two examples of this sprawl, a trend that will likely make central Beijing property even more desirable and expensive. The government is massively upgrading the public transportation network (see a map of the planned subway expansion) as part of this expansion of Greater Beijing.

The rising prices in Beijing are very painful for many Beijingers. But I think we are watching Beijing evolve into a truly world-class city, along the lines of New York, Tokyo or London. How many New Yorkers or Londoners or Tokyo residents can afford to live in the city center as opposed to commuting in from a suburb? The same dynamic is at play in Beijing.

There are professional investors who are not as worried as Chanos about a China real estate bubble. In December 2009 Pimco issued a report comparing Japan’s experiences with China’s-The Chinese Real Estate Market: A Comparison with Japan’s Bubble. The author does not believe that real estate market in China is anything like Japan’s was near the height of the Japanese bubble, though he points out that there may be future risks:

Overall, the basic economic conditions in present-day China are substantially different from those of late-1980s Japan or the post-bubble U.S. (Chart 6).

…We see little risk in the foreseeable future that increases in loans to the real estate sector will pose a threat to the financial system. That said, a rapid increase in lending could lead to a rise in bad debt in the future, a risk of which Chinese regulators seem well aware.

An expansion in mass-market housing is vital for China to realize growth powered by domestic demand. A high percentage of home purchases in China are carried out in cash (down payments are generally around half of the purchase value), and the amount of home mortgages remains relatively small. This is related to the nation’s high savings rate, but as middle-class housing becomes more available, the younger generations may rely more on loans. Increased demand for homes and durable goods may help promote a healthy cycle in domestic demand as a reduction in the savings rate may lead to higher personal consumption.

Given China’s potential growth, its real estate market has plenty of room for enlargement over the long term, which stands in clear contrast to Japan’s real estate bubble. That said, the current situation seems to have some characteristics of a future asset bubble. A key theme in the months ahead will likely be whether and how the Chinese government is able to contain the potential overheating in the market and shift the focus of housing supply towards the mass market.

On April 12 US Global Investors issued a more sanguine report titled “No Housing Bubble in China“. The US Global Investors analysts believe that the relatively low amount of debt to disposable income and the government’s efforts to rein in excessive speculation should keep China’s real estate market from blowing into a full scale bubble:

Leverage is also an important indicator in judging how susceptible a housing market is to growing into a bubble. The chart below, also from BCA Research, shows debt as a percentage of disposable income in China and in a number of developed-market countries. More than half of the developed countries had debt in excess of income, with Denmark and Ireland pushing 200 percent.

COMM - China's Household Levarage is Low Relative to Income 040910

China is at the far other end, with debt totaling just 44 percent of disposable income. Furthermore, homebuyers in China put down at least 20 percent as a down payment (30 percent for a first-time buyer and 40 percent for a second-home buyer to damp down speculation). These buyers rarely fall behind on their mortgage payments.

It’s obviously true that there has been rapid price appreciation in major cities like Shanghai and Beijing. Prices have risen above the affordability level for most families in these cities, and that is why the government is acting to let some air out of those markets before dangerous bubbles form…

Where does the China housing market go from here? Home inventories are low in major cities – at the current sales pace, there are only a few months worth of inventory in Shanghai, and the situation isn’t much better in Beijing or Shenzhen.

But demand is still strong. A recent survey by the Hong Kong-based brokerage CLSA found that 56 percent of China’s middle-class families are considering buying a new home – despite the higher prices many families can pay a 30 percent down payment because of their higher savings.

Our own research shows that property developers, coming off a good 2009, are expanding into second- and third-tier cities, where housing markets are also growing and prices are more affordable.

This widening of opportunity, combined with the government’s early recognition that decisive measures were needed, together will raise the probability that it will achieve its goal of slowing down home price increases without causing the market to collapse.

Who is right? It may take a while to find out. The stock market at least seems to have made an early judgement, as Maoxian has pointed out at his excellent blog, where he compares year-over-year changes in Chinese property prices (not yet updated to include the March 2010 11.7% rise) with an index of Chinese real estate stocks.

In the meantime, China should should show it is still a socialist country and build more affordable housing, as an article in Xinhua yesterday suggests: China to boost low-income housing building: housing authorities. UPDATE3: The government announced more measures Saturday, detailed here, that contributed to a 4% drop in the Shanghai stock market Monday.

I assume Jim Chanos must be hoping the government will be unable to rein in a potential bubble in time to ward off a full-scale crash.

Please tell me what you think in the comments.

You can subscribe to this blog’s RSS feed here, get my more frequent Twitter updates @niubi, and see my Sina Weibo updates here. You can also follow my blogging on digital media and the Internet in China at DigiCha. And if you want cupcakes or custom cakes in Beijing, please check out my girlfriend’s CCSweets bakery. CCSweets has locations in Central Park in CBD and the Village North in Sanlitun, and you can always order online.


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  • Anonymous

    This article seems to point out some very good points as to why the China’s property might not crash. I seem to be torn between the two possibilities. Recently James Chanos did a whole lecture at Columbia University as to why he predicts that it will crash. Located here: http://cbs360.gsb.columbia.edu:8080/ess/echo/presentation/d607ba99-b8a9-471a-9bc4-08560d9a1b2e

    It’s about an hour long, but very informative.

    I completely agree with you in that Property Taxes in China will do no changes to the current buying frenzy. I also agree that lending overseas to have a transaction appear as 100% cash to China is a major loophole that will further increase the chances of a bubble.

    Regarding building affordable housing for the lower income, or in this case most of new workforce earning 3000 RMB per month is difficult as you say due to the population. Many SOEs have their low income housing buildings to provide for their workers, and often they are difficult to secure. Either via lottery or some sort of guanxi. Instead of the government giving liquidity to banks so that they can lend out non-performing loans, perhaps that 2 trillion dollars of stimulus money was better used to create housing for everyone, so that everyone had a place so stay like during the cultural revolution. Btw, old timers in Beijing often say that that time period was the happiest.

    You are right in saying that the Chinese have very few investment options. Stocks, or Real Estate. Even foreign purchases are restricted due to the USD$50,000 limit they are allowed to remove per person per year. Though that doesn’t stop a Chinese person from buying Thai, or US property right now.

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  • http://www.sinocism.com/ Bill Bishop

    Thanks for the comment. You are in the real estate business here?

    I am torn too. I think there are real estate bubbles in some markets in
    China–Hainan the most obvious example. I am not as convinced about Beijing.
    Tongzhou and Yanjiao have gotten frothy, but I think they are more ahead of
    themselves and the infrastructure buildout that is just getting started than
    in a crazy bubble that will collapse in tears and whose heights will never
    be seen again.

    I am biased, as I own property in Beijing and am not selling right now (some
    might also call me stupid, but I am used to that).

    Many of the foreign China bears I think focus too much on the macro data,
    data that ironically in other settings they would call flawed, to draw
    conclusions about a market whose underlying characteristics they may not
    really understand.

  • Anonymous

    Dear bbishop,

    I actually am helping Chinese investors diversify their portfolio abroad. It’s a little more tricky than most people expect, but its a great time for people with cash.

    Regarding what James Chanos has said, he claims that 50-60% of the China’s GDP is fixed asset investment. Which i’m not sure is entirely true, but not unbelievable. His main points are that the fueling of projects, or real estate that do not produce income, is the epitome of a financial collapse. Do you think that is the case?

    On the other hand, China will always have demand for more housing, esp Beijing. Like your article I agree Chinese people do not buy property with the intent on turning a quick profit. They definitely use it as a hedge against inflation. It seems now the biggest fear people have is not buying the property and missing out on a possible upside appreciation. Which basically points to a combination of fear and greed.

    I also agree that foreigners look only at the macro data. You’re right that Real Estate is localized. Not everywhere will go down, or up unilaterally. Same with difference between California and Pheonix.

    One thing is that I believe these are very exciting times in that I feel it is going to go one way or another.

    Are you a foreigner in Beijing?

  • bankofraymond

    This article seems to point out some very good points as to why the China's property might not crash. I seem to be torn between the two possibilities. Recently James Chanos did a whole lecture at Columbia University as to why he predicts that it will crash. Located here: http://cbs360.gsb.columbia.edu:8080/ess/echo/pr

    It's about an hour long, but very informative.

    I completely agree with you in that Property Taxes in China will do no changes to the current buying frenzy. I also agree that lending overseas to have a transaction appear as 100% cash to China is a major loophole that will further increase the chances of a bubble.

    Regarding building affordable housing for the lower income, or in this case most of new workforce earning 3000 RMB per month is difficult as you say due to the population. Many SOEs have their low income housing buildings to provide for their workers, and often they are difficult to secure. Either via lottery or some sort of guanxi. Instead of the government giving liquidity to banks so that they can lend out non-performing loans, perhaps that 2 trillion dollars of stimulus money was better used to create housing for everyone, so that everyone had a place so stay like during the cultural revolution. Btw, old timers in Beijing often say that that time period was the happiest.

    You are right in saying that the Chinese have very few investment options. Stocks, or Real Estate. Even foreign purchases are restricted due to the USD$50,000 limit they are allowed to remove per person per year. Though that doesn't stop a Chinese person from buying Thai, or US property right now.

  • http://www.digicha.com/ bbishop

    Thanks for the comment. You are in the real estate business here?

    I am torn too. I think there are real estate bubbles in some markets in
    China–Hainan the most obvious example. I am not as convinced about Beijing.
    Tongzhou and Yanjiao have gotten frothy, but I think they are more ahead of
    themselves and the infrastructure buildout that is just getting started than
    in a crazy bubble that will collapse in tears and whose heights will never
    be seen again.

    I am biased, as I own property in Beijing and am not selling right now (some
    might also call me stupid, but I am used to that).

    Many of the foreign China bears I think focus too much on the macro data,
    data that ironically in other settings they would call flawed, to draw
    conclusions about a market whose underlying characteristics they may not
    really understand.

  • bankofraymond

    Dear bbishop,

    I actually am helping Chinese investors diversify their portfolio abroad. It's a little more tricky than most people expect, but its a great time for people with cash.

    Regarding what James Chanos has said, he claims that 50-60% of the China's GDP is fixed asset investment. Which i'm not sure is entirely true, but not unbelievable. His main points are that the fueling of projects, or real estate that do not produce income, is the epitome of a financial collapse. Do you think that is the case?

    On the other hand, China will always have demand for more housing, esp Beijing. Like your article I agree Chinese people do not buy property with the intent on turning a quick profit. They definitely use it as a hedge against inflation. It seems now the biggest fear people have is not buying the property and missing out on a possible upside appreciation. Which basically points to a combination of fear and greed.

    I also agree that foreigners look only at the macro data. You're right that Real Estate is localized. Not everywhere will go down, or up unilaterally. Same with difference between California and Pheonix.

    One thing is that I believe these are very exciting times in that I feel it is going to go one way or another.

    Are you a foreigner in Beijing?

  • MZ

    When the mark of a product is extremely over-valued, that constitute a bubble.

    First, the sole reason of the supposed high worth of Beijing’s real estate is because it is a centralized government and Beijing is at the heart of it. Every province/city in China has official representative administrations in Beijing, and 90% of the best universities are in Beijing. It is an anomaly and the ultimate symbol of centralized governing system and it does not speak and cannot speak for the economic trend of China in general.

    I personally don’t believe the value of either Beijing or Shanghai’s housing is worth as much as it is right now. Most of the houses are either ultra-luxury apartment or office building or hotels. The percentage of vacancy of houses built after 2004 in China is over 40%. Why? Because they are built for International Expo and Olympic.

    You have to dig deeper into the official data and political system in order to understand its motive. You can ask around, not a single Chinese believe the official data being published. For instance, what constitute the high growth of China in recent years? It’s dependency solely on import/export do not explain the high growth that it is experiencing right now, it is because a very significant portion of its high growth in term of GDP is championed by its housing market bubble.

    I believe that the absolute economic growth of China is far lower than what is being projected or advertised by the government. The reason being that China’s political system REQUIRES high growth rate as a symbol of its successful governing. As China enters the WTO, the voice of democracy gains momentum both within the government and among Chinese population. To have an iron grip on the dominance of the communist party, the central government NEED to demonstrate that it is the best without democracy in order to annihilate the possible seeds of democratic trend. The current financial crisis gives such a perfect opportunity for such demonstration. That is why you see such a surge in the growth of ultra-nationalism in recent years.

    This provides us an extremely important insight into the motivation behind the supposed booming economy in China. In short, If economy of China fails, the communist party will fail. There is simply too much stake on the table for the communist party, and it will do anything, everything to make it looks good, at least to the information isolated Chinese people. During this period, you will of course encounter hot money flowing into China to take the advantage, and that is why it is a bubble, with the strength of the whole country backing it, the bubble will take quiet a beating, however, no bubble will growth infinitely large, it is just a matter of time when it is going to burst.

  • MZ

    When the mark of a product is extremely over-valued, that constitute a bubble.

    First, the sole reason of the supposed high worth of Beijing's real estate is because it is a centralized government and Beijing is at the heart of it. Every province/city in China has official representative administrations in Beijing, and 90% of the best universities are in Beijing. It is an anomaly and the ultimate symbol of centralized governing system and it does not speak and cannot speak for the economic trend of China in general.

    I personally don't believe the value of either Beijing or Shanghai's housing is worth as much as it is right now. Most of the houses are either ultra-luxury apartment or office building or hotels. The percentage of vacancy of houses built after 2004 in China is over 40%. Why? Because they are built for International Expo and Olympic.

    You have to dig deeper into the official data and political system in order to understand its motive. You can ask around, not a single Chinese believe the official data being published. For instance, what constitute the high growth of China in recent years? It's dependency solely on import/export do not explain the high growth that it is experiencing right now, it is because a very significant portion of its high growth in term of GDP is championed by its housing market bubble.

    I believe that the absolute economic growth of China is far lower than what is being projected or advertised by the government. The reason being that China's political system REQUIRES high growth rate as a symbol of its successful governing. As China enters the WTO, the voice of democracy gains momentum both within the government and among Chinese population. To have an iron grip on the dominance of the communist party, the central government NEED to demonstrate that it is the best without democracy in order to annihilate the possible seeds of democratic trend. The current financial crisis gives such a perfect opportunity for such demonstration. That is why you see such a surge in the growth of ultra-nationalism in recent years.

    This provides us an extremely important insight into the motivation behind the supposed booming economy in China. In short, If economy of China fails, the communist party will fail. There is simply too much stake on the table for the communist party, and it will do anything, everything to make it looks good, at least to the information isolated Chinese people. During this period, you will of course encounter hot money flowing into China to take the advantage, and that is why it is a bubble, with the strength of the whole country backing it, the bubble will take quiet a beating, however, no bubble will growth infinitely large, it is just a matter of time when it is going to burst.

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  • ben

    The following is my 2cent worth. I have been very right in the past on the following

    1. Rise of the quality and importance of Japanese vehicles
    2. Demise of the japanese Housing then economy
    3. The October 1987 stock crash (within 1 month)
    4. Demise of the hawaii market.
    5. The effect of techonology (MS/Apple) and why it would lead to actual growth properties and stock markets in the late 90′s
    6. The stock market bubble (1998-2000)
    7. Lack of a sustained recovery and the housing market bubble.

    Among others.

    I believe this issue can be seen as a bubble in someway but not in the same was as in japan or in the US. More money is involved and is substaial. Peoples life savings are at risk here and not as leveraged. However there is the “catch”.

    I lived in china over 10 years and have been watching this bubble continue for the past 2-3 years. Many thought it would break after the Olympics came and past. However as mentioned above it is still funded by to primary parties -
    wealthy and state run companies. Both have incentives as mentioned in the preceding articles in where to put their money and how to get more loans.

    If the money was spent building affordable housing that would of course allow both groups to rent in the future and earn money from their now somewhat depreciated investment. however most are building “luxury apartments” or accommodations. At first glance this would actually seem to be a good thing, but here in lies the problem.

    You see if the government views Luxury apartments as being superior in quality then they call allow the bubble to proceed until it bust. it means then that a large amount of good quality and now affordable homes would be on the market.

    But this is where china the state run companies and wealthy investors lack basic experience that most construction workers from developed countries will pick out right away. That is poor quality. In the US you saw very poor quality of work when the building boom was on in many of the housing market. In addition to cheap loans another problem arose where people who did not know how to care for a house were suddenly owners.

    So with the bubble bust the market started to see first the real worth of the home which were greatly affect by poor building and poor owners. Had true worth been created the homes would still be work the material + labor put into them.

    How does this relate to china? While the building quality has greatly improved (10 years ago I saw regular cold concrete shunts in 30 story high rises, today I see relatively few). However they still have many problems with the basic building blocks beyond structural. If you see a building here that looks 15 years old, it is probably 5 years old.

    So even if people don’t live in the building in 5 to 10 years they will be literally falling apart. This includes these luxury apartments. Any metal component literally degrades without any usage, this include internal wiring. This is due to the pollution and other environmental problems along with contamination in the manufacturing process. So what then happens is only the building that are built with quality will be worth any type of investment. This then leaves a very bad situation to those in china who are not the wealth or very knowledgeable. The state run companies in the end don’t care I they loose as long as in the short term they gain. The wealth should know how to get quality if they don’t they won’t be wealth long, the smart will try to dump before it breaks.

    So that leave the lower upper class or those who truly are stretched to make the loans. They will be left holding the bag of poor quality luxury apartments. These will then probably be taken over by the government and turned into affordable housing which will ill suit the dwellers. Then left to crumble. The state governments will get incentives to turn over theirs to be converted and they will of course keep the best ones.

    So as the saying goes there is a sucker born every minute is going to prove true here also.
    So in the end the wealthiest stay wealthy, the poor are left with junk and the economy will slow but have plenty of work rebuilding all the crumbing buildings, while inflation ensure the common class will l only have to work 50 -60 years to afford a sub par home.

    Thus the throw back to the sum landlords I knew all to well in NYC and other large cities.

  • ben

    The following is my 2cent worth. I have been very right in the past on the following

    1. Rise of the quality and importance of Japanese vehicles
    2. Demise of the japanese Housing then economy
    3. The October 1987 stock crash (within 1 month)
    4. Demise of the hawaii market.
    5. The effect of techonology (MS/Apple) and why it would lead to actual growth properties and stock markets in the late 90's
    6. The stock market bubble (1998-2000)
    7. Lack of a sustained recovery and the housing market bubble.

    Among others.

    I believe this issue can be seen as a bubble in someway but not in the same was as in japan or in the US. More money is involved and is substaial. Peoples life savings are at risk here and not as leveraged. However there is the “catch”.

    I lived in china over 10 years and have been watching this bubble continue for the past 2-3 years. Many thought it would break after the Olympics came and past. However as mentioned above it is still funded by to primary parties -
    wealthy and state run companies. Both have incentives as mentioned in the preceding articles in where to put their money and how to get more loans.

    If the money was spent building affordable housing that would of course allow both groups to rent in the future and earn money from their now somewhat depreciated investment. however most are building “luxury apartments” or accommodations. At first glance this would actually seem to be a good thing, but here in lies the problem.

    You see if the government views Luxury apartments as being superior in quality then they call allow the bubble to proceed until it bust. it means then that a large amount of good quality and now affordable homes would be on the market.

    But this is where china the state run companies and wealthy investors lack basic experience that most construction workers from developed countries will pick out right away. That is poor quality. In the US you saw very poor quality of work when the building boom was on in many of the housing market. In addition to cheap loans another problem arose where people who did not know how to care for a house were suddenly owners.

    So with the bubble bust the market started to see first the real worth of the home which were greatly affect by poor building and poor owners. Had true worth been created the homes would still be work the material + labor put into them.

    How does this relate to china? While the building quality has greatly improved (10 years ago I saw regular cold concrete shunts in 30 story high rises, today I see relatively few). However they still have many problems with the basic building blocks beyond structural. If you see a building here that looks 15 years old, it is probably 5 years old.

    So even if people don't live in the building in 5 to 10 years they will be literally falling apart. This includes these luxury apartments. Any metal component literally degrades without any usage, this include internal wiring. This is due to the pollution and other environmental problems along with contamination in the manufacturing process. So what then happens is only the building that are built with quality will be worth any type of investment. This then leaves a very bad situation to those in china who are not the wealth or very knowledgeable. The state run companies in the end don't care I they loose as long as in the short term they gain. The wealth should know how to get quality if they don't they won't be wealth long, the smart will try to dump before it breaks.

    So that leave the lower upper class or those who truly are stretched to make the loans. They will be left holding the bag of poor quality luxury apartments. These will then probably be taken over by the government and turned into affordable housing which will ill suit the dwellers. Then left to crumble. The state governments will get incentives to turn over theirs to be converted and they will of course keep the best ones.

    So as the saying goes there is a sucker born every minute is going to prove true here also.
    So in the end the wealthiest stay wealthy, the poor are left with junk and the economy will slow but have plenty of work rebuilding all the crumbing buildings, while inflation ensure the common class will l only have to work 50 -60 years to afford a sub par home.

    Thus the throw back to the sum landlords I knew all to well in NYC and other large cities.

  • Michael Cheng

    Most of your arguments actually support Chanos’ view. If the wealthy continue to bid up housing prices, the downpayment % will remain abnormally high, since they’re just parking their cash. The wealthy in China are driven to buy in Beijing as prices are high enough to absorb their cash and the market is liquid. Otherwise, they’d have to buy up very illiquid whole villages in the countryside. At this level of wealth concentration, you would expect to see abnormally high and distorted income to debt figures. And, even with the population exploding to 22 million in Beijing, hundreds of thousands of apartments sit empty, meaning there’s no fundamental support for the prices if the wealthy need to liquidate their real estate holdings. Some rich guys will get out in time, but many will not. The government efforts to curb the bubble obviously isn’t working since prices are still rising by double digits. This increase is happening in a country that has a centrally commanded economy with the power to crush prices overnight!

  • Michael Cheng

    Most of your arguments actually support Chanos' view. If the wealthy continue to bid up housing prices, the downpayment % will remain abnormally high, since they're just parking their cash. The wealthy in China are driven to buy in Beijing as prices are high enough to absorb their cash and the market is liquid. Otherwise, they'd have to buy up very illiquid whole villages in the countryside. At this level of wealth concentration, you would expect to see abnormally high and distorted income to debt figures. And, even with the population exploding to 22 million in Beijing, hundreds of thousands of apartments sit empty, meaning there's no fundamental support for the prices if the wealthy need to liquidate their real estate holdings. Some rich guys will get out in time, but many will not. The government efforts to curb the bubble obviously isn't working since prices are still rising by double digits. This increase is happening in a country that has a centrally commanded economy with the power to crush prices overnight!

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  • http://www.searchofficespace.com Rent Offices

    Great article and very interesting graphs.

  • http://www.searchofficespace.com Rent Offices

    Great article and very interesting graphs.

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