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Random thoughts about China housing bubble

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All right, now the Chinese regulatory (People’s Bank, China banking regulatory commision, China Securities Regulatory Commission,…) got what they wished for this Christmas: after the cool down of the doemstic stock market, now housing market started take a turn (according to many experts including Vanke CEO Wang Shi). This is reflected in the sharp declining of home builder stocks in China (think Vanke 000002). And in the US, two China real estate ADRs, EJ and XIN, both lost more than 10% today.

I think most people will agree the existence of bubbles in China stock market and housing market. But many of us disagree how big it is; is it causing problem for the real economy (overheating), and introduce unecessary risks? I am not economist and do not pretend to be one. The interesting thing for me, is that the Chinese regulatory took the notes from the melt down of US sub-prime loans, and tried to be one step (or maybe many steps) ahead of the curve. (Below, E-House/EJ office on Changning Rd, Shanghai)

E_House_CN

Personally I don’t think the housing market in China is over-heated. Yes, not everyone can afford a home, even in the US. But don’t try to talk this in China. I think every hard working people deserve to live better, at least I think so when I was in Shanghai. Here comes the demand, not the the kind of the “inflated” demand in the US, in which case many sub-prime borrowers really should not get into this home ownership, or some people bought a home really stretched their financial means…Forget about the appreciation of the Yuan, just think each year how many Chinese new graduates need to find jobs in cities, and after a few years they will need to buy an apartment (a pre-requesite of getting married) in China. And guess what, their parents will offer RMB to help!

So what’s my point? I think if the Chinese banks are honest, and do homework when they give out loans, they will not get massive delienquencies we have seen in the US. Housing prices fluctuates from time to time. But people will not be panic and sell the home if it dropped 10% of the value, as long as he/she can pay the mortgage, and the general economy and market did not deteriorate (for instance he/she lost a job or something). Another thing in China is the 30% deposit rule, unlike in the US, bank can storm a 30% decline of the property value (very unlikely).

More real estate brokers in the same street (Changning Rd).

(Update Dec 19) Beijing MorningPost news titled 央行明令取消房贷转按揭 (China central bank to ban mortgage refinance, home equity line of credit): 痛斥房地产八宗罪,首次承认炒房普遍性…

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