Sunday, June 12, 2011

Chinese Property Bubble is different

If you look at the Chinese Property market, to many experts it looks like a very serious bubble. Prices in cities like Beijing, Shanghai or Hong Kong are unsustainable. For Jim Rogers, legendary investor based in Asia (Singapore), there is no question that there is a bubble in Chinese property market:

"For me there is no question, there is a property bubble in the urban coastal real-estate of China. But that is not China, that is not the whole economy, it is much much broader than that. Yes, you will gonna see that Chinese real-estate speculators will go broke, I assure you of that."

Won't it have a massive effect on greater Chinese economy?

"There will be problems and you will see that real-estate speculators will go broke. But that is not the Chinese economy. In America you could buy 5 houses without a job and then banks got these mortgages and turns them into something more magic. That is not happening in China. You cannot even buy a single house without a job in China."

In fact Jim Rogers is just touching the main difference between the US Property Bubble and Chinese Property Bubble. Let me put it in a more direct way: The main difference of "property" for US people and Asian people is that in US property is seen as a device to consume (get credit against it) while in Asia property is seen as a device to save! Most houses in China are bought by cash or relatively low loan to value ratios. But I do not agree with Rogers on the bubble burst effect on broader Chinese economy. There are some problems ahead which can cause more pain than he things. Many Chinese would serve higher mortgage rates when the rates goes up. This will make them even spend less on other goods and services. Combine this with the declined demand from west for Chinese goods in the future due to their own financial problems, then GDP would be greatly effected.

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