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How large is the property bubble in China/commonwealth countries? What could cause it to pop? I ask because this is something I've talked about w/ friends and i

How large is the property bubble in China/commonwealth countries? What could cause it to pop? I ask because this is something I've talked about w/ friends and is very difficult to pin down. As a casual observer it seems like real estate assets are inflated, but not overleveraged, and there is no clear mechanism for a bank run/margin call scenario such as 2007-8.

taurath 9y ago
I think real estate in hong kong costs 18x the gross annual median income, compared for 9x in SF, or SJ (Vancouver is 11.8). If I had to guess, the property investment train just can't keep going on forever - eventually I'd imagine it has to top out as nobody can afford to live anywhere anymore. The younger generation is locked out of housing markets completely, and only through family inheritance is owning any property affordable unless you are lucky enough to be in a boom area at the right time. I could just see any major region having a housing crisis cause the dominos to fall - if the Taipei market takes a 30% dive, all those investors need to park their money somewhere else, which will over-inflate other markets even quicker. That or some pillar holding up one of the markets failing (Ad economy stops returning fat multiples as saturation sinks in). It may be my perspective as a younger person but the economy has always been extremely fragile as long as I've been alive, and it seems like while investments have gone up over time the bar to getting in is higher than its been in a century.
- roymurdock 9y ago
  I'm 24 so you're preaching to the choir :) The thing is - the world is currently awash in liquidity. Some small-ish defaults are happening in the auto loan and student loan markets, but nothing on the scale of 2007-8 mortgage defaults. Unless there are just huge, shadow banking markets for derivatives on these debts that nobody has brought to light yet, and all the major banks are involved. I'm not seeing how my generation (aside from the professional/engineering class) being locked out of the housing market in large urban areas triggers a recession though.
  - taurath 9y ago
    I'm not saying it would trigger it, just that it is a symptom of a system thats gone way out of bounds. I don't even think it will be a mortgage default crisis per say (though when the values go down everyone who's currently stretched to get into their place will be screwed for a while). People parking their money on real estate could all try to get out of a given market at once, making a run on housing values. Strange thing is, thats the only case in which I am personally able to buy a house, so there's a large part of me that wishes it would happen so there would be more units on the market and affordability.
3pt14159 9y ago
Debt to GDP in China is pretty unsustainable. Asking for a cause is hard and property markets are generally less liquid so rises and falls tend to be more drawn out, but it's probably going to be Chinese banks getting hit by bad loans and the government propping them up. The Chinese stock market isn't as frothy as it was a couple years ago, but the larger Chinese economy still relies on property backed debt for business expansion. While I agree that property in places like Canada aren't overleveraged, demographics (baby boomers) are masking the true picture because a very large percentage of the population is relying on home equity to sustain their standard of living into retirement and there is a non-trival amount of "off-book" leverage in the form of mom and pops lending a couple hundred grand to their kids to get the 5% or 10% down that you're legally required and the kids are ploughing the majority of their income into their mortgage just before having to support the healthcare system as mom and pops retire and start to really hit it. With less of paycheque available mortgages are going to get strained, even if interest rates stay this low for the next couple decades. This is all kinda handwavy, I'm not really sure how, but I'm sure that what we have now is unsustainable. I might be wrong about a hard crash, they could try to inflate their way out of the debt / inflated assets, but we're definitely not going to see a good amount of growth in the stock market for the next 7 years or longer if there is no pullback.

taurath 9y ago

I think real estate in hong kong costs 18x the gross annual median income, compared for 9x in SF, or SJ (Vancouver is 11.8). If I had to guess, the property investment train just can't keep going on forever - eventually I'd imagine it has to top out as nobody can afford to live anywhere anymore. The younger generation is locked out of housing markets completely, and only through family inheritance is owning any property affordable unless you are lucky enough to be in a boom area at the right time. I could just see any major region having a housing crisis cause the dominos to fall - if the Taipei market takes a 30% dive, all those investors need to park their money somewhere else, which will over-inflate other markets even quicker. That or some pillar holding up one of the markets failing (Ad economy stops returning fat multiples as saturation sinks in). It may be my perspective as a younger person but the economy has always been extremely fragile as long as I've been alive, and it seems like while investments have gone up over time the bar to getting in is higher than its been in a century.

roymurdock 9y ago
I'm 24 so you're preaching to the choir :) The thing is - the world is currently awash in liquidity. Some small-ish defaults are happening in the auto loan and student loan markets, but nothing on the scale of 2007-8 mortgage defaults. Unless there are just huge, shadow banking markets for derivatives on these debts that nobody has brought to light yet, and all the major banks are involved. I'm not seeing how my generation (aside from the professional/engineering class) being locked out of the housing market in large urban areas triggers a recession though.
- taurath 9y ago
  I'm not saying it would trigger it, just that it is a symptom of a system thats gone way out of bounds. I don't even think it will be a mortgage default crisis per say (though when the values go down everyone who's currently stretched to get into their place will be screwed for a while). People parking their money on real estate could all try to get out of a given market at once, making a run on housing values. Strange thing is, thats the only case in which I am personally able to buy a house, so there's a large part of me that wishes it would happen so there would be more units on the market and affordability.

3pt14159 9y ago

Debt to GDP in China is pretty unsustainable. Asking for a cause is hard and property markets are generally less liquid so rises and falls tend to be more drawn out, but it's probably going to be Chinese banks getting hit by bad loans and the government propping them up. The Chinese stock market isn't as frothy as it was a couple years ago, but the larger Chinese economy still relies on property backed debt for business expansion. While I agree that property in places like Canada aren't overleveraged, demographics (baby boomers) are masking the true picture because a very large percentage of the population is relying on home equity to sustain their standard of living into retirement and there is a non-trival amount of "off-book" leverage in the form of mom and pops lending a couple hundred grand to their kids to get the 5% or 10% down that you're legally required and the kids are ploughing the majority of their income into their mortgage just before having to support the healthcare system as mom and pops retire and start to really hit it. With less of paycheque available mortgages are going to get strained, even if interest rates stay this low for the next couple decades. This is all kinda handwavy, I'm not really sure how, but I'm sure that what we have now is unsustainable. I might be wrong about a hard crash, they could try to inflate their way out of the debt / inflated assets, but we're definitely not going to see a good amount of growth in the stock market for the next 7 years or longer if there is no pullback.