Wednesday, December 30, 2009

The Sarcasm Report v.38

Will the China property bubble pop?

Beijing, China (CNN) -- When Crystal Zhang decided to buy a house last August, it seemed like a no-brainer.

For years, she had been spending a big chunk of her salary renting a studio apartment in Beijing, where she works as a mid-level executive in a multinational company. But her landlord kept hiking the rent, so she found a second-hand apartment and plunked 640,000 RMB (nearly US$100,000) as 52 percent down payment for a new home. She now lives in a cozy, one-bedroom flat and sets aside 25 percent of her monthly salary to pay for mortgage. "I hope to pay all up in five years," says Zhang. "By then I can start making some other investments."

Zhang, 30 and single, is one of the fortunate ones. The upwardly mobile professional has ample disposable income--and a good sense of timing. In just five months since she bought her 85-square-meter apartment, it has already appreciated by 38 percent. "I'm glad I bought this one when I could still afford it, even though its price was already high," she said. "Now the price is ridiculously high."


85 square meters is 915 square feet.
$100,000 x 1.38 = $138,000.
That's $151 per square foot.

Update: G.H. spotted a math error here. It's roughly twice as expensive. See below.

When I bought my home (just outside of Seattle, WA) in 1997 I paid less than $100 per square foot. It's a fairly nice house on 1/3rd of an acre. It has two fireplaces and a three car garage. It is currently assessed at about $170 per square foot, down from its $200 peak.

I had no idea I was competing with upwardly mobile Chinese professionals on such a level housing playing field. I'm still slightly in the lead, but I'm really losing some ground here. This is truly embarrassing. I'm going to lose to a second-hand apartment. I can feel it in my bones. I need to step up my game.

My only hope is that China continues to build more 85-square-meter apartments to the point that prices come down. For the life of me I can't figure out what to do to make my own house price go up any more. That's for sure. Mowing the lawn no longer seems to be offering any bang for the buck. It's as if I mow it simply to partially maintain the existing price. What an exercise in futility that is becoming!

If only I lived in China. I'd still be competing with a billion people, sure, but there also seems to be a billion "no-brainer" investments to match. How could I lose?


Nobody ever loses betting on China!

Update: G.H. has pointed out in the comments that my math was way off. I thought $100,000 was the purchase price. That was just the down payment though. That means the apartment cost roughly twice as much and I have already lost the race. Big time! Wow!

33 comments:

  1. There seems to be one extraordinarily relevant fact in this story that makes the whole China "bubble" look materially different from the US real estate bubble. Namely:

    "...and plunked 640,000 RMB (nearly US$100,000) as 52 percent down payment for a new home."

    52 percent down!!!!!

    We don't do that over here!

    These people actually have a stake in their endeavours. That might make a difference, but I don't know.

    ReplyDelete
  2. G.H.,

    True, they are savers. However...

    Mid-level executive job.

    Owe's $48k. Spends 25% of salary. Expects to pay off loan in 5 years.

    Implies $50k job after taxes. That's not a typical Chinese salary I'm thinking.

    ReplyDelete
  3. The way I'm reading it she owes approx. $98K.

    That's a $100K job!!!

    But she has to be typical, she's in the MSM after all. LOL.

    ReplyDelete
  4. One more thought.

    New home-owner Crystal Zhang remains optimistic of her investment. "The bubble won't burst," she said, citing measures that Beijing introduced recently to prevent a U.S.-style crash in home prices. "Whenever the bubble is about to burst, there will be measures taken to stop it."

    The same exact thing was said by Chinese investors about Chinese stocks heading into China's Olympics. No way would the government allow a crash. In hindsight, biggest crash in 20 years. Oops!

    ReplyDelete
  5. G.H.,

    You are right! I misread it. That means all the math is WAY off. I've already lost the race!

    ReplyDelete
  6. That's it. I'm putting my home on a cargo ship and sending it to China. Who says we can't export anything any more? I want a piece of that $300 per square foot market! ;)

    ReplyDelete
  7. Yeah, your math is off but...

    ...you want to know what really pizzes me off?

    "Whenever the bubble is about to burst, there will be measures taken to stop it."

    And I have to operate my motor vehicle on the same roads as these people!!! FOR PETE'S SAKE

    ReplyDelete
  8. G.H.,

    Thanks for catching that. I wasn't getting enough use out of "my personal blunders" label, lol.

    "And I have to operate my motor vehicle on the same roads as these people!!!"

    http://shanghaiist.com/2009/07/15/old_man_stops_red_light_violations.php

    ReplyDelete
  9. At least China is wasting its own money, we get to waste theirs as well!

    ReplyDelete
  10. GYSC,

    Field of Dreams and Dreams

    If they build it and build it, then they will...

    Perhaps I should end it there. Let's just say that investors may be overstimulated. ;)

    ReplyDelete
  11. I wonder if indeed we have entered a time where there is no consequence. Should be interesting.

    ReplyDelete
  12. "Whenever the bubble is about to burst, there will be measures taken to stop it."

    Like what? Ending the One-child policy?

    ReplyDelete
  13. Colorado's minimum wage becomes 1st in US to drop

    Colorado's wage is falling 3 cents an hour, from $7.28 to the federal level of $7.25. That's because Colorado is one of 10 states that tie the state minimum wage to inflation. The goal is to protect low-wage workers from having unchanged paychecks as the cost of living goes up.

    But Colorado's provision also allows wage declines, and the state's consumer price index fell 0.6 percent last year, so the minimum wage is going down.
    http://tinyurl.com/yj45dxx

    Uh-Oh

    Kevin

    ReplyDelete
  14. The thing is that in the Western world when we go from trough to peak in a cycle, we go from 8% unemployment to 4%.

    Since there are around 1 billion people in the western and maybe 50%work, that would mean 20 million people enter the work force and put some strain on the system until it peaks and needs to readjust for another cycle.

    So basically, with China and India now coming into play, all we need is 20 million new workers making 30K to put strain on resources.

    If China and India take off, we're going to get squeezed.

    ReplyDelete
  15. Oh... and I forgot to mention that a good chunk of those 20 million probably already have debt to their name. So the impact of our 20 million increment would be smaller than that of 20 million new spenders in China and India leveraging themselves to the hilt suddenly.

    That's another reason why I think inflation will hit.

    ReplyDelete
  16. Anonymous (and/or Kevin),

    We just need to think up new jobs while simultaneously increasing productivity (reducing jobs). That's all!

    Um, any ideas?

    My girlfriend suggests increasing global HR personnel (more jobs) so that more workers can be laid off at a faster pace (productivity miracle)!

    Perhaps the new HR workers could be automated though. That would allow fewer but much more highly compensated employees to maintain the robots, at least until the point the robots can maintain themselves!

    ReplyDelete
  17. GYSC & All,

    Happy New Year!!

    May our wildest dreams come true in 2010!

    On the other hand, more of the same might be better. Our wildest dreams might be nightmares. ;)

    ReplyDelete
  18. Mark,

    "We just need to think up new jobs while simultaneously increasing productivity (reducing jobs)."

    How about everyone just doesn't work and instead they just think what job they would have if they were working and then governmant simply pays them based on that.

    I didn't think so.
    LOL

    Kevin

    ReplyDelete
  19. Kevin,

    I like it! We'll just expand the government "think tank" to include all Americans, lol. ;)

    Here's what I'm thinking.

    Commodities Post Biggest Annual Gain in Four Decades on China

    http://www.bloomberg.com/apps/news?pid=newsarchive&sid=alEPwXMfk1hE

    Dec. 31 (Bloomberg) -- Commodities posted the biggest annual gain in four decades, led by a doubling in copper, sugar and lead prices, as Chinese demand compensated for the longest slump in the global economy since World War II.

    It's all resting on the shoulders of Chinese demand now. They are filling the "hole" in the global economy. I'd like to believe, but I'm just so "chicken".

    Chinese Burglar Trapped By Hole in Wall

    http://www.weirdasianews.com/2009/12/29/chinese-burglar-trapped-hole-wall/

    “I underestimated the size of the hole and wrongly thought I could make it through,” the would-be chicken thief later confessed to police officers.

    Chinese Farmers Sell Blood To Make Ends Meet

    http://www.weirdasianews.com/2009/12/12/chinese-farmers-sell-blood-ends-meet/

    Sadly, more than 6,000 farmers claim that selling blood is the only way the can earn enough to pay their bills. Usually, it’s 600 ccs at a time every two weeks, and the money earned is considered a “nutrition and traffic subsidy,” according to officials.

    Nutrition and traffic subsidy? The US should be looking into this more closely.

    ReplyDelete
  20. BANJUL, Jan 1 (Reuters) - Gambian President Yahya Jammeh said on Friday he would provide an immediate 20 percent salary boost to the West African nation's civil servants but criticised some for being lazy.
    http://tinyurl.com/yebrqwb

    LMAO
    Makes sence too me. Yahoo!

    Kevin

    ReplyDelete
  21. "Vote for me and all your wildest dreams will come true"
    -Napolean Dynamite which is a MUST see!

    All the best for the new year for all.

    Kevin,
    nice to see you.

    ReplyDelete
  22. Happy New Year!


    'Halo 3' $59.99

    Having conversations with the creator...priceless!

    ReplyDelete
  23. Mark,
    do you get more residual checks from the Halo series after Christmas due to all the game buying for gifts?

    ReplyDelete
  24. Someday I'm going to be beaten up by the real Halo people. I hope you realize that. I'll then be forced to move to Africa on the hopes of being a civil servant as I attempt to hide my identity.

    I'm playing Borderlands right now. Fun game!

    Sorry for not posting much. Apparently I'm addicted. :)

    ReplyDelete
  25. I think some copper mine was shut down and with all that pent up demand for housing by the unemployed I think copper is going much higher!!
    Sarcasm always ON

    ReplyDelete
  26. GYSC,

    Perhaps my bearishness should be based on garlic mashed potatoes. First garlic hoarding in China and now this from India.

    http://www.telegraphindia.com/1100105/jsp/calcutta/story_11944204.jsp

    “I had been buying potatoes in small quantities because of the high price. In the past seven days, the price has fallen considerably. I hope that potatoes do not again become unaffordable for the middle class,” said Mitali Chatterjee, a homemaker on BB Ganguly Street.

    It's a tough call for India's middle class. Will it be a fancy new car with ongoing gasoline expenses OR will it be a bag of potatoes to help feed one's family? Decisions, decisions.

    http://en.wikipedia.org/wiki/Great_Famine_%28Ireland%29

    The potato was introduced to Ireland as a garden crop of the gentry. By the late seventeenth century it had become widespread as a supplementary rather than a principal food, the main diet still revolved around butter, milk and grain products. In the first two decades of the eighteenth century, it became a base food of the poor, especially in winter.[23] The expansion of the economy between 1760 and 1815 saw the potato make inroads in the diet of the people and becoming a staple food all the year round for the cottier and small farm class.[24]

    The potato's spread was essential to the development of the cottier system, delivering an extremely cheap workforce, but at the cost of lower living standards. For the labourer it was essentially a potato wage that shaped the expanding agrarian economy.[24] The expansion of tillage led to an inevitable expansion of the potato acreage, and an expansion of the cottier class. By 1841, there were over half a million cottiers, with 1.75 million dependents. The principal beneficiary of this system was the English consumer.[24]


    Oh oh. Song time.

    You say Ireland, I say India.
    You say England, I say America.
    Potato, potato, potato, potato.
    Let's call the whole thing off!

    ReplyDelete
  27. Stag,

    Have you heard about Bernanke's forthcoming new paper? It's entitled:

    The GREAT! Moderation (of the American Middle Class)

    I think he finally got it right!

    p.s.

    G.W. Bush did a peer review and suggested he end the piece with the slogan:

    Mission (not yet) Accomplished.

    ReplyDelete
  28. mab,

    "Rogues Gone Broke"

    I can't wait to see the TV infomercials on late night TV!

    Rogue: "A wandering beggar; a vagrant."

    We're all rogue now!

    ReplyDelete
  29. Stag,

    I just spent the better part of a week in Miami. I had planned on spending a day checking out the real estate scene, but ultimately decided to enjoy all the R&R time I could get. Visited a friend in Key Biscayne who bought 4 years ago and is now underwater. It's a long term investment!

    Anyway, South Beach was packed. Restaurants, shops and bars were all hopping. Perhaps all the money not being spent paying mortgages is being spent on having fun. Not at all what I expected.

    Oil at $82/bbl! Ouch!

    ReplyDelete
  30. Mab,
    I was in Sunny Isles Beach a few years ago and it was a weird scene. I enjoyed the peacock bass fishing in the Miami canals, but the area was definitly not for me. The cab diver tried to seel me some beach condos as well (It was 2006 I think) LOL!

    ReplyDelete
  31. mab,

    If we could just get oil up to $200 a barrel! Just think how prosperous we'd be when oil then crashes back down to $20!

    Other than the "prosperous" part, I'm not even half-joking.

    GYSC,

    Cab diver? Freudian slip?

    It's an underwater life!

    The side effects can be brutal though. He can get "the bends" from water diving and he can lose "the Benz" from land diving. Coincidence?

    ReplyDelete