7 ms·

Beijing Property Market Plunges

32 points by gamble 16y ago

Chocobean 16y ago
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-policy-idUSTRE73D48820110414 http://www.reuters.com/article/2011/04/14/us-china-property-...
- hartror 16y ago
  Thanks, was wondering if this was good or bad news!
  - roel_v 16y ago
    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.
- joe_the_user 16y ago
  The time to avoid a bubble was a while back. The problem with bubbles is there's no staying still with them. It's exponential growth or .. exponential decline. My guess is they'll make a desperate effort to "reflate" things to avoid that scary exponential decline part. We'll see what happens.
Joakal 16y ago
Brief points on wiki are pretty insightful: https://secure.wikimedia.org/wikipedia/en/wiki/Chinese_property_bubble https://secure.wikimedia.org/wikipedia/en/wiki/Chinese_prope...
holdenc 16y ago
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.
- huetsch 16y ago
  This article from May of last year claiming a 31.4% m/m plunge is interesting: http://www.economicsjunkie.com/beijing-property-prices-plunge-31-4-in-one-month/ http://www.economicsjunkie.com/beijing-property-prices-plung... It's possible that there are significant seasonal fluctuations in the market. That said, the three-month average is still significantly negative: "Beijing property prices rose 0.4% m/m in February, 0.8% in January and 0.2% in December". And word on the street is that it's getting a lot harder to sell property. I'd be interested to see a graph with average housing price data stretching back for the past few years.
- cturner 16y ago
  > 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 16y ago
    That raises an interesting point. How would you take advantage of such a conviction? Can you short the property market in China, for instance?
    - cturner 16y ago
      Hmm. No. Good criticism :)
    - radicaldreamer 16y ago
      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.
upgrayedd 16y ago
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?
entangld 16y ago
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 16y ago
  > 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 16y ago
lindsayrgwatt 16y ago
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 16y ago
  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&hl=en&client=firefox-a&hs=oDz&rls=org.mozilla:en-GB:official&prmd=ivnsu&source=univ&tbm=nws&tbo=u&sa=X&ei=CvenTauBPdCo8APTopW5Bw&ved=0CDsQqAI&biw=1073&bih=563 http://www.google.co.uk/search?q=australian+housing+market&#...
chinaproperty 16y ago
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 http://en.wikipedia.org/wiki/Beijing_Financial_Street [2] http://en.wikipedia.org/wiki/China_World_Trade_Center_Tower_III http://en.wikipedia.org/wiki/China_World_Trade_Center_Tower_... * hence why I am posting anonymously.
- roel_v 16y ago
  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?)
  - zaidf 16y ago
    I just moved into a 15th floor small cubicle office overlooking Madison sq garden for $300/mo. I couldn't find such deals in my non-NYC college town.
  - adaml_623 16y ago
    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
epynonymous 16y ago
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!

32 points by gamble 16y ago

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

hartror 16y ago
Thanks, was wondering if this was good or bad news!
- roel_v 16y ago
  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.
joe_the_user 16y ago
The time to avoid a bubble was a while back. The problem with bubbles is there's no staying still with them. It's exponential growth or .. exponential decline. My guess is they'll make a desperate effort to "reflate" things to avoid that scary exponential decline part. We'll see what happens.

Joakal 16y ago

Brief points on wiki are pretty insightful: https://secure.wikimedia.org/wikipedia/en/wiki/Chinese_property_bubble https://secure.wikimedia.org/wikipedia/en/wiki/Chinese_prope...

holdenc 16y ago

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.

huetsch 16y ago
This article from May of last year claiming a 31.4% m/m plunge is interesting: http://www.economicsjunkie.com/beijing-property-prices-plunge-31-4-in-one-month/ http://www.economicsjunkie.com/beijing-property-prices-plung... It's possible that there are significant seasonal fluctuations in the market. That said, the three-month average is still significantly negative: "Beijing property prices rose 0.4% m/m in February, 0.8% in January and 0.2% in December". And word on the street is that it's getting a lot harder to sell property. I'd be interested to see a graph with average housing price data stretching back for the past few years.
cturner 16y ago
> 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 16y ago
  That raises an interesting point. How would you take advantage of such a conviction? Can you short the property market in China, for instance?
  - cturner 16y ago
    Hmm. No. Good criticism :)
  - radicaldreamer 16y ago
    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.

upgrayedd 16y ago

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?

entangld 16y ago

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 16y ago
> 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 16y ago

lindsayrgwatt 16y ago

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 16y ago
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&hl=en&client=firefox-a&hs=oDz&rls=org.mozilla:en-GB:official&prmd=ivnsu&source=univ&tbm=nws&tbo=u&sa=X&ei=CvenTauBPdCo8APTopW5Bw&ved=0CDsQqAI&biw=1073&bih=563 http://www.google.co.uk/search?q=australian+housing+market&#...

chinaproperty 16y ago

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 http://en.wikipedia.org/wiki/Beijing_Financial_Street [2] http://en.wikipedia.org/wiki/China_World_Trade_Center_Tower_III http://en.wikipedia.org/wiki/China_World_Trade_Center_Tower_... * hence why I am posting anonymously.

roel_v 16y ago
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?)
- zaidf 16y ago
  I just moved into a 15th floor small cubicle office overlooking Madison sq garden for $300/mo. I couldn't find such deals in my non-NYC college town.
- adaml_623 16y ago
  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

epynonymous 16y ago

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!