Saturday, May 21, 2005

Shanghai Property Market Tumbles

In one major Chinese city, the home price boom has quickly ended. "Shanghai's new middle classes, every bit as obsessed by rocketing property prices as their British counterparts, are suddenly asking if the bubble has finally burst. After years in which prices rocketed out of all proportion to Shanghaiers' still lowly incomes, the last month has seen the first falls being reported by local media."

"Sales in April dropped from 30,000 to 10,000. Prices for some new developments have dropped by a fifth almost overnight, while officials say the fall is already averaging over five per cent."

Doubters of a global bubble should read this. "Speculative investors have plunged into the market from elsewhere in China, Hong Kong, and further afield. There have even been private investors from Britain and Ireland willing to take a gamble. Prices rose by 19 per cent in the first three months of this year alone."

"'I think the overall correction will be in the region of 10 to 20 per cent,' said Sam Crispin, a British property consultant in Shanghai."

17 Comments:

At 9:26 AM, Anonymous Anonymous said...

california is not shanghai.

besides who the hell would want to live in shanghai??

california is filled with thousands of brand new millionaires every year from people working at tech companies that go IPO. there is thus an infinite supply of qualified buyers for every single house that comes on the market anywhere in the bay area.

keep preaching gloom and doom. there will be no bubble bursting because there was never a bubble in the first place. it was just reality of supply and demand.

 
At 10:05 AM, Anonymous Anonymous said...

I would love to hear some examples of newly minted IPO millionaires.

The only one that comes to mind is google and a pretty small percentage of the bay area works there. I would guess less than .5%.

You are correct it is a function of supply and demand.

Supply is artificially restricted by speculators (30% of all purchases) banking on 10-20% appreciation.

As soon as the realization hits them that 10-20% capital gains are not the norm there will be a rush to hit the exits. How long would a normal person tolerate negative or no cashflow without appreciation to bail them out?

There will be excess supply in the near future and a bunch of unhappy overleveraged "homeowners".

Good luck!

 
At 10:07 AM, Blogger goleta said...

The return of a troll!
What year you live in? The only IPO that created some millionaires in the past 5 years is Google
and since 2000 the Bay area has lost more than 10 times of the millionaires Google created. Most tech companies are now valued at
1/100 to 1/5 of what they were in 2000. For example, JDSU's stock is only 1/100 of the peak in 2000.

I'd estimate California has lost more than 90% of tech millionaires since 2000.

 
At 10:23 AM, Anonymous great caesar's ghost said...

And there can't be any millionaires over there in China--they's all communists. [/dumbass]

 
At 10:58 AM, Anonymous Anonymous said...

Google is a bubble and it will burst in five years. (

Justice is being served in Shanghai. California will be much worse because our government is not a tenth as effective as the Chinese government.

Poetic justice will be served in California.

BTW, China is communist by name. They are more capitalistic then you and I.

What 9:26 Anon said is heresy.

 
At 11:00 AM, Anonymous nostradamus said...

(california is filled with thousands of brand new millionaires every year from people working at tech companies that go IPO.)

Perhaps you live in a time warp stuck in the year 1999.

Aside from Google (as someone pointed out), the IPO pipeline for Silicon Valley tech co's is pretty much snuffed out. In the late '90s, the IPO boom indeed let loose tons of fast money into Bay Area real estate. But that's not the case anymore. And even back then, most of the action centered on the very high-end properties because it was only the VCs and the execs who were able to liquidate their holdings. The avg Joe tech worker with stock options weren't nearly so fortunate.

The "hot" thing on Wall St right now is not tech IPOs but M&A---buyouts, mergers. This often creates wealth for stockholders and execs but also results in significant layoffs which isn't good for home prices.

In fact, H/P announced today that they will lay off as many as 15,000 workers (10% of workforce.) I don't know how many of these workers are in California, but that isn't exactly bullish for home values in the areas where these soon-to-be-unemployed people live.

 
At 11:08 AM, Anonymous historybugg said...

(california is not shanghai)

Actually all global markets are much closer aligned than they have ever been before due to global financial liquidity flows. Money can slosh around the globe at the click of a mouse these days.

That's why we are seeing housing booms (and busts now) in Australia, New Zealand, UK, China, Hong Kong, USA, parts of Europe, etc. This has never happened before. What it tells me is this: the boom/bust pattern that has been so evident in US economic history is now a global phenomenon.

For an investor or a speculator, this presents a dilemma. Some of the boom areas actually have solid fundamental stories to tell (fast growth, job creation, wealth creation not based strictly on asset inflation, etc.) While other boom areas are simply rising due to overamped liquidity (i.e., money/debt).

But because booms are global now, an investor must separate the wheat from the chaff. The China story is fundamentally sound. After all, they are the largest nation in the world and have been held back by political forces for nearly 100 years. They are making up for lost time.

But that doesn't mean China is a "buy" right now. They will have growing pains and boom and bust, much like the US did in the late 1800s. In the late 1800s, the US was the "China" of its day. The fundamental story was sound. But there were multiple RE and stock market crashes and panics along the way.

The key is to discern the fundamentals from the "noise" of cyclical liquidity. A rising tide lifts all boats, as they say, even the least seaworthy. When the tide goes out, you need to carefully determine which of these ships is worth salvaging (or investing in.)

 
At 11:15 AM, Anonymous Anonymous said...

A real world traveler Mr/Ms "california is not shanghai" we've got here. I'm surprised he/she could spell it. Tell us about Shanghai....and good luck on your upcoming high school graduation, or is summer school again in the cards, troll?

 
At 11:32 AM, Anonymous so. cal serf said...

Here's a great article on China's currency policy by Paul Krugman:

Our scary addiction to low-interest loans from China

 
At 12:44 PM, Anonymous Anonymous said...

I would have thought that the Shanghai economy most closely resembles that of neighboring Hong Kong.

Hong Kong has an incredibly volatile RE market with gains of 100% in 3 years or losses of 50% in 4 years not being at all unusual.

 
At 2:28 PM, Anonymous Anonymous said...

Dear Anon 9:26AM: Regarding your comment: "there will be no bubble bursting because there was never a bubble in the first place. it was just reality of supply and demand."

I recall having a similar opinion in the late 1980s after having purchased my first house.

Have a look at this link posted by Desi Dude yesterday: http://www.firstamres.com/pdf/Cagan_FireBurn_1104.pdf

Just quickly page through the maps on pages 10 through 28 showing the parallels between the current real estate market and the R.E. bubble that formed in the late 1980s. Then have a look at the affordability graphs on pages 45 & 46. If that doesn't convince you, I don't know what will.

 
At 3:23 PM, Blogger desi dude said...

that report is by a real estate firm(not a realtor).

The research is solid and by appearance he prepared the report for his firm, not a paid client.

I was totally impressed with that report and i posted. i did not hear any comment and was wondering if any one read it at all!

 
At 6:57 PM, Anonymous Anonymous said...

2:28 -- thanks -- excellent PDF and the color charts are eye-poppingly informative. Chip

 
At 7:03 PM, Anonymous Anonymous said...

I had seen the report several months ago.

It is solid but way too technical for a mindless real estate bull to comprehend. I wouldn't hold my breath to wait for an RE booster to wake up from a well produced technical report.

I got guff today from my father if I still believe in the RE bubble in So Cal. That is a laugh.

The only people I run into that are not aware of the potential for a RE bubble in So Cal are self-interested (work in RE) or asleep.

 
At 8:00 PM, Anonymous Anonymous said...

Boston: We don't make anything tangible. All the major factories are gone. The only industries left are gov't and non profits (all parasitical in nature). Negative pop. growth and record snow last winter. The only industry has been "real estate." With the largest percentage increases over the past 21 years, you can't touch a 4 bedroom colonial for under 550k. The only problem? Nobody's buying. The bubble is rapidly deflating. And I thought we were less greedy than those folks in Shanghai!

 
At 8:07 PM, Blogger deb said...

Desi Dude,

It is a great report. I had seen it a couple months ago, but it was good to read it again. The one thing that bugs me about it is that he goes to all this trouble to make the case for a bubble of historic proportions, and then proceeds to say that prices will not really fall??? A return to "normalcy" he calls it.

(He does work for First American- a huge name in the RE biz, title ins, etc)

 
At 8:08 PM, Blogger ajh said...

12:44 anon,

Neighboring Hong-Kong? Shanghai's a fair way from Hong-Kong, maybe Atlanta-Philadelphia distance.

 

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