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I also wouldn’t personally buy property in China but my reasons aren’t entirely based on profitability. I think there’s still room to earn money on houses in second-tier cities like Chengdu judging by the value increases over the last few years. It just doesn’t look like it’s going to stop soon, although at some point it will stop and that will be a dangerous time of readjustment in the domestic housing market.
I generally approach the real estate market here with skepticism but I do know a few well-informed people who don’t believe that the bubble is going to pop anytime soon. Among those is Adam Mayer who faces these questions (the domestic bubble) a lot. Maybe Ben will have something to say also, I know he purchased a property in Chengdu recently and learned a lot through the process.
Charlie, I appreciate the insight, Adam Mayer is an architect – he is in the right place, he’s involved in the building building side of things. Real estate investment (on our scale, especially) isn’t about building buildings and how long the construction contracts will flow in, it’s about the effect after investors are the only people able to buy property and real home owners who live in the single property they’re able to afford stop being able to afford new properties. When that shift from a seller’s market to a buyer’s market takes place, and the % of vacant properties is really high, it’s an indication of a housing bubble where new construction is simply unaffordable to anyone but more investors – and investors stop investing when their existing ‘investment properties’ aren’t able to sell. Of course China (as a gov’t entity) is fighting hard to both hide data and prevent a pop, but the market is *absolutely* in charge..they’ve tried to establish several rules and regulations to slow down the growth that happened in early 2000’s but it may already be too late. From your experiences surely you’ve met a ton of rich people in China – and I’d wager many of them had significant real estate holdings at some point or another..it has been an absolute boom for a lot of people, the problem is whether the extremely rich can sustain that which made them rich on their own – because the majority of people who live here are poor.
Real estate investment in my opinion, is about judging where the next big growth happens – not looking at what’s already growing. Infrastructure and gigantic work parks (subway, tech park) etc have major effects here, and unless you have inside information about a new gigantic park before real estate moguls I’d wager you’ll not be able to get ‘in’ before it’s already jacked itself up in price. Chengdu has kind of levelled off in price in my opinion, in the last year/two, it was really really hot between like 2002-2008 though. There’s no way I’d invest now.
Vincento, the “mail list” for real estate analysis is from CBRE. They managed to snake up one of my business cards at some point and added me without request a few years ago 😉 I don’t remove myself just so I can gloss over their publishings and see if anything is interesting.
Since the show told the guy’s full name I decided to Google him & found his LinkedIn account. I was surprised to see that we were 3rd degree connections & considered sending him a message, but decide that would be a little weird.
What ive heard is that Chinese people, not necessarily investors but also rich people tend to put their money away in Real Estate. This because in China the stocks market is very vulnerable and saving accounts give a very low interest. Therefor prices rise and apartments get unoccupied leaving the lower class not affordable to buy a decent house. However its also the government who benefits alot from real estate.
To everyone: There has been a very good documentary made, at least in my eyes, about the Chinese Bubble for Dutch TV. Only the first minute is in Dutch ( introduction ) and after its only English and Chinese.
A description of what it is about:
In ‘the Chinese Bubble’ a construction worker, a car salesmand and a real estate tycoon (Feng Lun, CEO of Vantone) talk about their dreams and their believe in Chinas economic miracle. People with a very different positions on the economic ladder but all with the same ambition, getting ahead. Like archetypes of the developmen tstages of the Chinese economy they give a face for the public of the ‘miracle’ of chinese fast economic growth.
Also their will be Chinese economics talking, including Andy Xie. They see a ‘coming’ real-estate bubble and explain when and how this can explode. But they dont fear the long term consequences of this bubble. The explosion will hurt and require a reform, but the economic downfall will last short.
(should be something like that, translated from Dutch. Mind my english :p )
To give you an idea on Chengdu housing – I can buy a *house* in Vegas for like 1/2 the SQM cost as buying a shitty apartment in 2.5 ring road south Chengdu. Vegas also ‘over-built’ during a relative economic boom in the last decade. The bigger the rise, the bigger the fall. Of course “long-term” this isn’t a permanent issue as you mention Ye Ming, but long-term is decades not years, I guess there is very little that will have a long-term consequence as the market generally goes up over long periods of time in any ‘lifetime’ industry or investment, stocks, property, bond, etc..regardless of the blocks booms and busts inbetween 😀
rick is right in a lot of ways … I watched Chengdu’s prices go from 1500m2 to 3500 in about a year and now high end properties are are 10.000m2, which is ridunkulous, as anyone living here knows.
Is any property in Chengdu actually worth 2kUSD per m2? (location, livability of the city, climate, opportunities, schools etc) answer absolutely not.
Places to look to MAKE MONEY are the spots between CQ and CD, Wuhan, Leshan and DuJiangYan, places like that that will see growth and above all government infrastructure investment (or already has seen it).
And definitely in Chengdu. Chengdu is not yet finished with its growth. East side spots along the proposed subway lines, villa style spots along 3rd ring, anything along third ring actually, especially in east is just waiting for the growth wave to hit it.
You face a gamble with Chengdu however, as the scheme is based on things like hukou reform and the creation of a CQ-CD megacity corridor.
But look 5 years into the future and what do you see? the aftermath of Armageddon or the world moving on? …. place yer bets ya’ll.
I see the real estate situation here kind of like the gold market: the price has been rising exponentially for years and will continue to go up, but it will come down eventually. You can still make money but personally I’m not interested in investing in anything when it’s breaking new highs and double the price that it was 24 months ago.
And that goes without mentioning all the other concerns you have with investing in Chinese real estate: environmental and political concerns, red tape, and so on. It’s not a free market that operates purely by the laws of supply and demand, it’s a top down controlled real estate economy. I’m inclined to think it’ll eventually see a big crash unless the economic situation here dramatically changes for the better in the near future.
I’m happy renting in Chengdu. Prices are very reasonable if you shop around.
In Shanghai 70% of the flats are sold to people who are repeated buyers or don’t even live there. High housing prices will become an obstacle for China’s urbanization and we know urbanization is an important driver for the future growth of China. The fundraising method used by the government for money is distorting for the economy. Because the government is profiting from the property market they really have an interest in prices going UP on the market. The prices going up benefits certain people and hurting other people. So it creates distortion in the economy that are not even related to economic accomplishments.
A report from a few months ago by The Economist Intelligence Unit that concludes the Chinese real estate market is not a bubble that is about to burst.
The Sustainability of China’s housing boom
(U have to subscribe to download the summary)
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