Several observations in China.
By Daniel at 30 November, 2009, 10:34 pm
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1). Home size in China include walls, balcony and doorway, 130 sqm is equivalent to about 1050 sq ft in the USA while the price is based on 130 sqm, not the 96 sqm.
2). When you buy property based on listing price, you can only buy “maopi fan”, bare bone apartment, there is no window, no bathroom, no electric outlet, no wall, no floor, it’s all brick/cement and you need to spend another 30% to make it livable.
3). Most homes were sold long before they are finished.
4). What you buy in China is 70 years use, you do not have other rights, but you can sell at any time.
5). Since it is apartment instead of single family house, the exterior gets dirty in a few years and looks terrible, also it is standard practice for builders to cut corners to boost profit, rarely a cement building can last 30 years, some even collapse before completed, look at the 10-y old apartment complex：
img.scol.com.cn/200906…
img.blog.163.com/photo…
6). In small cities, average home price (including the additional 30%)of 130 sqm apartment (1050 sq ft by US Standard) equivalent to 20 years salary, in Beijing and Shanghai, the ratio is about 40-50.
7). There is no property tax at this moment, but that can change at any time.
8). Renting is almost unthinkable (disgracefully), main reason is landlord can kick you out at anytime, there is no protection for tenant, most owners simply buy “Maopi Fan” and never bother to spend money to make it livable, only waiting to sell it later. Monthly rent vs. house price is about 1:300 to 1:800.
9). When you driving along the apartment complexes at night, only about 10-25% have lights, everything else are dark without being occupied, but owned by speculators, looks very surreal.
10). Private person NOT allowed to have land and build his/her house, land is obtained by local government for virtually nothing and sold at auction to developers at max price, usually about 20-100 times of the purchase price from farmers/peasants.
11). The vast majority of income for local government is from land auction, and proceeds are used to build luxury office for local government or buy German luxury cars, local government will intervene if the developer sell things at reduced price for any reason. Standard vehicle for government employee is Audi, many even buy BMW in large numbers, they do not buy Chinese vehicles. GM benefits the most from government purchases due to perceived luxury. Picture of government office in Hefei where average salary about $200/month.
yq.ahxf.gov.cn/uploadp…
12). Often owners sell house to himself, this is how it works: Adan buy a “Maopi Fang” for RMB 400,000 in 2008, she ask her relative at the bank to finance another mortgage and sell to herself for RMB600,000, so the RMB200,000 profit is partially shared by the bank employee, and then the “Maopi Fang” is officialy worth RMB600,000 and everyone is happy.
13). China do not have a social security system, so people put all their money in buying a house and hope for appreciation. People also believe the bank won’t fail because it is government owned. At the same time, there is no official guarantee like the FDIC $250,000 insurance. If there is bank run, the bank will be wiped out with 48h.
Based on the observation, no doubt there is huge bubble in China and something bad will happen sooner or later, but not necessarily resulting in price crash, there is good possibility that government will intervene by forbidding owners sell at reduced price, instead, printing more and more RMB, so 1000% inflation is likely.
- Kbigley
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