China Bubble

Read More:

1. http://www.businessinsider.com/jim-chanos-china-is-overheating-and-overindulging-2010-2#ixzz0nRcbO7jR
2. http://www.bloomberg.com/apps/news?pid=20601109&sid=an0ehK2dtdXg

China – The Mother of All Black Swans – By Vitaliy Katsenelson

http://commentaryandanalysis.mining.com/2010/05/07/will-chinas-bubble-implode-and-bring-the-us-down-with-it/

Not sure how assuring this is. But the measures cited in the news sound very familiar:

1. Second-home restrictions: tightening of credit access for buyers of second homes
2. Land supply: the government would open up for development an additional 180,000 hectares — double the amount made available in 2009

And in a related note, China’s biggest builder by square footage sold, Hengda, has announced a strategic 15% drop in price for properties they develop and sell in China. Even though 15% isn’t very much compared to last year’s run-up in prices, it would be interesting to see whether this will trigger domino effect among other builders.

I am not a big fan of the 2012 movie, but this is what Andy Xie (former chief Asia economist at Morgan Stanley, now an independent economist) said,

Chinese real estate market is 100 percent overvalued and that the intrinsic value of the Shanghai Composite Index is 2,000 points

He went one step further predicting that China’s stock and real estate markets will decline slightly in the fourth quarter of this year, with a large decline coming in 2012. Xie has been preaching this since last August.

1. http://news.163.com/10/0412/10/642J7U3L000146BC.html

There are a couple of interesting reports floating around on China Daily recently.

Beijing unveils tough measures to curb housing price rises

China needs three decades to make homes affordable

According to Chen, China has built about 70 million residential apartments in its urban areas in the past decade, which equals to one-third of the households. The figures indicated that only three or four out of 100 households moved into new apartments each year.

"China faces a severe housing shortage," Chen said. "Even if apartments didn’t cost any money, four units wouldn’t turn into 70 apartments."

Very interesting comments. On one hand, there is a “severe housing shortage” based on demand projection, which maybe partially explains why the housing price is shooting up so rapidly. On the other hand, housing price has driven the ordinary Joes out of the market. In cities like Ordos, a large percentage of apartments are empty, either unsold or horded by empty-nester investors, creating ghost cities like the one featured on Time.

1. http://www.time.com/time/photogallery/0,29307,1975397_2094492,00.html

1. Buy FXP: ProShares UltraSh FTSE/Xinhua China 25
2. Short or buy put options of China financial stocks traded in US
3. Short or buy put options of China real estate stock traded in Hongkong
4. Short or buy put options of China construction material manufactures such as ACH

After taking a brief dip in the global financial meltdown of 2008, property values in China’s urban centers surged in 2009. Take, Shanghai’s Pudong district, for example, experienced a 57% rise in a matter of months.  And China’s surpassing US as world’s largest real estate investment market. Prices in some areas in Beijing have zoomed to a level higher than that of Manhattan with an average price to income ration of 27:1.

There is no way for this to be sustainable. Bubble has to burst sooner or later. The question is, when will it happen?  A more interesting question is, what is in it for me? How can I profit from the upcoming bubble burst in China’s real estate market? This blog is dedicated to figuring out how.

Disclaimer: information on this blog is provided as it is with no warranty of any kind and confers no rights. It is not investment advice and the blogger is not responsible for any action taken as or not as a result of reading this blog.