

Beijing Property Market Plunges - gamble
http://imarketnews.com/node/29203

======
chinaproperty
I am currently negotiating* a commercial (office) lease in Beijing and I can
honestly say the market is ridiculously overpriced.

I have put in offers on a number of buildings in Beijing's Financial Street
district[1] and there is literally no space available. There are tons of brand
new, A-grade office buildings but they are all owned and less than 20%
occupied by China Life, People's Life Insurance Company of China and other
monolithic State owned enterprises that let the space sit idle and they leave
the lights on all day and all night.

The best office building in Beijing[2], was leasing office space at
300-400RMB/sqm per month less than 12 months ago and now they are turning you
away if you offer less than 750RMB/sqm. The wierd thing is, some random
domestic Chinese "investment" firm will actually pay that rent and happily
move in.

I do believe there is a major correction due, but the government does control
the media so its hard to say how hard or soft the landing will be and how much
we will hear about it.

[1] <http://en.wikipedia.org/wiki/Beijing_Financial_Street>

[2]
[http://en.wikipedia.org/wiki/China_World_Trade_Center_Tower_...](http://en.wikipedia.org/wiki/China_World_Trade_Center_Tower_III)

* hence why I am posting anonymously.

~~~
roel_v
To be honest though, 750RMB/sqm is still only not even 80 euros (115 USD).
That's a discount price for office space in a remote industrial park in a
provincial town here in the Netherlands. If that's considered widely
overpriced in the top spot in Beijing, there's room left...

(Anyone have recent numbers on the price of office space in Manhattan?)

~~~
adaml_623
Please don't compare prices by just converting directly to another currency.
It's too simplistic.

You have to take into account taxes, salaries, property prices, the economy
and a lot of other things. IMHO

~~~
roel_v
To a certain degree you're right, but when comparing economies that have
roughly reached parity, a dollar to dollar comparison can give a rough
estimate of the merit of valuations; and otherwise, it can be used to estimate
the distance between economies. What I meant with my comment is that if the
most expensive (? I'm assuming that here) real estate in Beijing is only a
fraction of similar real estate classes elsewhere, the Chinese economy still
has room to catch up with the real estate prices. It's not a particularly wise
idea that the Chinese economy isn't up to par with the US and European
economies of course, it just shows that maybe what is considered so heavily
overpriced may not really be so in the medium term, if only the rest of the
economy can keep up (which I doubt it can, but that's a different discussion).

~~~
joe_the_user
"over-priced" is always relative to supply and demand. When supply exceeds
demand and there is no correction, the economy moves in a distorted and
irrational fashion, preparing the way for larger corrections in the future.

The parent had hard evidence supply seriously exceeded demand.

What do you have in that department?

------
entangld
Every boom (90's internet, 2000's housing, oil, eventually China) always seems
to be wrought with fraud and held together by matchsticks and glue. People
thought oil prices were purely demand driven until we found out they were
being bid up traders.

~~~
cturner

       > People thought oil prices were purely demand driven
       > until we found out they were being bid up traders.
    

Do you mean "bid up by traders"?

You're suggesting that oil prices are high because of a conspiracy? If so -
no.

That's a "turtles all the way down" argument.

Prices need to be sustained by demand. Traders may make money via moves on the
fluctuation. But buying a lot of oil in order to push the price up is not a
business model. You have to store it (expensive), transport it, and then when
you come to sell it the price will decline again. Not to mention the risk you
incurr by holding it, and the opportunity cost of not using that money to do
something else at the time.

An idea that does the rounds regularly is that a conspiracy of evil
speculators permanently distort markets. I've never seen a situation where
that was true. There may be periods where the market does odd things, and
market manipulation does exist, but unless it's a locked-up market (like
diamonds) or a true conspiracy of all the players (can't think of an example)
it will eventually have to revert to the mean because the traders will start
calling bluff.

Usually when you see people blaming speculators it's someone trying to cover
up ineptitude or corruption by picking an easy target.

When this kind of talk gets momentum the results can be bad. A common target
during collapsing bubbles is short-sellers (people who borrow stock, and sell
it, with the promise to re-buy it and give it back to its original owner at
another time, possibly tomorrow). Short-sellers contribute to price
discovering in markets, and this is a good thing. But during bubbles, people
who know about shorting can do well when others are doing badly, so they're an
easy target.

US regulators stroked this theme during the economic crisis and introduced
measures that limited short-selling for a period. In doing so, they
contributed to the crisis because short-sellers provide a lot of the liquidity
behind money markets. Cuffing short-sellers removed their liquidity pool from
money markets, which was already under strain.

~~~
entangld
>Usually when you see people blaming speculators it's someone trying to cover
up ineptitude or corruption by picking an easy target.<

I lived through the California energy crisis and there was no crisis. It was a
gigantic manipulation. Videos of energy traders laughing their butts off at
grandmothers dying of heatstroke. Oil doesn't need to jump into the hundreds
every time someone screams in the Middle East.

Analysts in every profession know the whims of their markets. Some of the
movements are reality based, some are based on perceptions. Commodity trading
(specifically oil) is highly profitable. It can be hacked by the people who
know the ins and outs. They'll never tell you, but it can. Most everything can
be hacked in some way. I highly doubt the few who are able to profit from the
ignorance of millions will confess that some troubles in the Middle East don't
significantly impact the supply chain. Or that the price of oil shouldn't jump
as wildly as it does. Or even that the oil price seems to reflect the greed of
traders chasing historical highs. Not buying it.

~~~
cturner
I don't know about the Californian energy crisis, but maybe this is an example
of a situation where the players are in alignment.

Spikes in oil prices can be caused by panic in an industry. For example, if I
ran an airliner maybe I'd seek to lock in fuel prices via forward trades.
There's a risk I'd pay a high premium for the period, but I'd judge that as
being bettter than the risk that I'd go out of business.

And spikes can be caused by speculators. But my point was that in liquid
markets things will revert to a mean that is backed by whatever the real
demand is. Pushing prices up by buying and holding oil is not in itself a
business model.

~~~
danssig
>For example, if I ran an airliner maybe I'd seek to lock in fuel prices via
forward trades.

I was under the impression that airlines are already always buying fuel via
futures regardless for planning purposes.

------
Chocobean
Looks like the policies* are starting to work. Good. Hopefully they can avoid
"The Bubble Which Will Dwarf All Other Bubbles"

[http://www.reuters.com/article/2011/04/14/us-china-
property-...](http://www.reuters.com/article/2011/04/14/us-china-property-
policy-idUSTRE73D48820110414)

~~~
hartror
Thanks, was wondering if this was good or bad news!

~~~
roel_v
There is no telling just yet! The Chinese property has been heavily inflated
for a few years already, propped up with extensive government intervention and
perverse incentives for local administrations to drive up land prices. There
is no telling yet if this decline is

a) real (government-issued numbers are one thing, reality is another);

b) driven by the policies (or just the bubble bursting);

c) permanent. It may be a spike caused by the timing of a measure, or a
financing roll-over, or whatever.

------
Joakal
Brief points on wiki are pretty insightful:
[https://secure.wikimedia.org/wikipedia/en/wiki/Chinese_prope...](https://secure.wikimedia.org/wikipedia/en/wiki/Chinese_property_bubble)

------
upgrayedd
Can anyone qualified/familiar with the situation comment on what the probable
effect the (likely) QE3 in June will have on the Chinese housing market and
consumer buying appetite?

------
epynonymous
for someone that lives in shanghai, this is great news. housing in shanghai +
beijing are ridiculous, i don't know why a house in shanghai (1000 sq ft/92 sq
m) would be more expensive than a house in sf, nyc, seattle, boston, etc of
similar dimensions. the running rate in a decent part of shanghai would be
roughly 566,153.00 USD (for 1000 sq ft/92 sq m). this isn't even the nicest
part of town, for that you'd be looking at 707,692.30 USD. take the average
income of a person in shanghai which is about 461 USD /month, who could afford
this?! it would take this person 38 years to save up to pay the 30%
downpayment (if considering 0% inflation over that time period).

i know for fact that the government's recent policies have played a big factor
in this drop in prices because they now limit people from buying a 3rd house
and have finally decided to add property tax.

hopefully this trend will keep up--buying opportunity!

------
holdenc
It's worth noting that month-on-month price fluctuations are prone to noise
and are fairly poor indicators of a more general price trend. This is why the
Case-Shiller housing indices are a three month moving average.

That said, no doubt there are declines to come in the Chinese property market.

~~~
cturner

       > That said, no doubt there are declines to come in the
       > Chinese property market.
    

I'm interested when I see predictions like these, because it's possible for
people to make money on them.

You have no doubt - have you taken a position in order to profit from the
certainty? If not - is it possible you have doubts?

~~~
orijing
That raises an interesting point. How would you take advantage of such a
conviction? Can you short the property market in China, for instance?

~~~
radicaldreamer
You short commodities. A sharp downturn in the chinese housing market will
cause a lot of Chinese to lose their savings which are tied up in property,
causing a recession, and sharply reducing commodity prices.

This is something that the Chinese government wouldn't mind too much either
because the rise in commodity prices beyond a certain point (and we're getting
pretty close) will cause political disruptions- which is the absolute last
thing that the government will accept.

There was a confluence of factors that drove the unrest these past few months
in the middle east, but one of the biggest was the sharp increase in commodity
prices, especially food and basic supplies.

~~~
orijing
I think the link is too far, so you'll be exposed to a lot more than just the
housing market. In finance, if you have a certain bet, you bet on that (and
hedge against all other changes), in order for your returns to be based on
your bet.

That's why hedge funds outperform on average.

~~~
radicaldreamer
Interesting... what about being long gold? I imagine that a housing crash in
China would drive investors into precious metals due to the lack of options
available for chinese savers.

------
lindsayrgwatt
Will be interesting to see if this goes to other markets both within China (I
can't imagine Shanghai is 'decoupled' from Beijing) and where it trickles over
to (Sydney? Vancouver?).

~~~
cturner
Great point. lindsayrgwatt has picked examples from Canada and Australian -
the two developed markets which some see to be overpriced and which haven't
yet had a painful correction.

Australian housing might have jumped the shark already - there's been lots of
noise about this over the last couple of weeks.
[http://www.google.co.uk/search?q=australian+housing+market&#...</a>

