Yes Virginia...It's a Bubble...

[GRG55]

Re: Yes Virginia...It's a Bubble...

if chinese real estate goes down, do you think it will take vancouver with it? or the reverse? more eagerness to go offshore? in terms of real estate, should we start to think of vancouver as part of china instead of part of canada?

Interesting questions.

I have never believed that the two are as interconnected as many Canadians might wish to believe. At this point I think the Canadian property market, especially Vancouver, is more vulnerable than mainland China. It is possible that an over-leveraged and slowing productive economy in China might result in business owners there liquidating non-business assets to service loans, including offshore property.

My sense is that private capital in China has few alternatives available to it...a situation I first noticed living and working in the Middle East and parts of Africa. In all these places the State has a huge direct involvement in the economy, and large swathes of it are blocked to private investment in order to protect the government owned companies from competition. This results in private capital being concentrated in very few alternatives, generally immature domestic stock/capital markets and domestic property development, giving rise to repeated speculative cycles in both if a country/region is "getting richer"; the Persian Gulf and China being good examples.

Canada has few such restrictions to capital, including foreign capital. The property bubble dynamic in Canada, especially Vancouver, may have been catalyzed by Chinese capital spilling offshore (with the discrete approval of the Chinese authorities as I have posited in the past), but I don't think it bears other resemblance to what is going on in Chinese property markets.

The psychology of an established and rapidly expanding bubble seems well entrenched among the local Canadian population, our bankers, realtors, property developers, real estate lawyers and our municipal, Provincial and Federal politicians. "Buy before the Chinese own it all" and "Buy before foreign money prices you permanently out of the market" are two of the storylines used by the Canadian property interest cohort to maintain the belief system needed to keep the game going. This post on another thread is illustrative of how pervasive that has become:
http://www.itulip.com/forums/showthr...373#post283373

This link to a recent post on Garth Turner's blog presents some statistics of buyer distribution on Canada's west coast. People who really think it is Chinese money driving the current insanity may be a bit surprised at these numbers:
http://www.greaterfool.ca/2014/07/16/the-gullible/

VancouverGoingUp was "right" in that he/she recognized better than many of the rest of us just how powerful a force was behind promoting that belief system, and how long and how large the resulting bubble might become. We should have given him/her more credit...after all he/she was an integral part of it. Unfortunately recognizing nascent bubble psychology and riding those waves has now become a core investment strategy in the past couple of decades.

[Milton Kuo]

Re: Yes Virginia...It's a Bubble...

if chinese real estate goes down, do you think it will take vancouver with it? or the reverse? more eagerness to go offshore? in terms of real estate, should we start to think of vancouver as part of china instead of part of canada?

Every person I have ever spoken to who was born in an Asian country believes that real estate never goes down and I would be amazed if real estate in China goes down and stays down. If I remember correctly, real estate in Hong Kong dropped nearly 50% around the late 1990s. Real estate prices in Hong Kong today have since eclipsed the highs of the last millenium and the general consensus is, "See? Real estate never goes down. There are corrections but they are great opportunities to buy."

I suspect that part of this belief is due to the fact that many people in Asia have experienced currency destructions in their lifetimes caused either by war or due to incompetent management of the currency.

In some ways, the real estate market in the U.S. over the past decade-plus is looking more Asian. As of today, the bursting of the housing bubble 2006 - 2008 looks like a mere correction. All one had to do was hang on and wait for the recovery (and profits) to return in short time. The only real estate that is down for the count is stuff that is obviously the equivalent of swamp land in Florida: houses in places no one lives and houses in very bad neighborhoods such as Compton.

If there is a housing crash in China, I would think that Chinese money initially will fly back into China to buy the corrections and thus temporarily lessen the amount of money going to the UK, US, Canada, Australia, etc. real estate markets.

[jk]

Re: Yes Virginia...It's a Bubble...

if chinese real estate goes down, do you think it will take vancouver with it? or the reverse? more eagerness to go offshore? in terms of real estate, should we start to think of vancouver as part of china instead of part of canada?

[GRG55]

Re: Yes Virginia...It's a Bubble...

And like all good bubbles it goes on much longer and inflates to a much greater extent than anyone could have imagined.

Is it finally the beginning of the end? Maybe. Maybe not...

China’s riskiest property market just collapsed. Is this how it starts?

February 25, 2013 at 11:05 am

The real estate market in Phoenix Island, a development project in the Chinese island province of Hainan, was so inflated, so outrageously expensive and unsustainable, that it became known as the Dubai of China. With its palm tree-lined streets, glimmering high-rises and ostentatious sports cars, it even looked a little like Dubai. And now, also like Dubai but maybe more in the vein of south Florida, the Phoenix Island real estate market that drove so much local economic growth has imploded...

China's Cities Struggle to Sell Apartments as Prices Slide

July 18, 2014

Shanghai

More bad news from China’s housing market. Apartment prices fell in June in all but 15 of China’s 70 largest cities.

That was the largest number of cities to see prices slide since January 2011, when the government changed how it measures the sector.

Prices in Shanghai and Guangzhou both declined 0.6 percent, while in Shenzhen they dropped 0.4 percent, China’s National Bureau of Statistics announced in a statement released today. The worst performer was Hangzhou, the capital of Zhejiang province, where prices were down 1.7 percent. The price drop comes amid a glut of excess apartments following years of runaway construction...

...In an attempt to spur sales, cities are loosening property restrictions put in place when the market was still hot, reported the official Xinhua News Agency on July 18. Over the past few weeks, Hohot, Inner Mongolia, and Jinan, Shandong, began allowing nonresidents to purchase homes and made it easier to get mortgages. On July 14, Nanchang, Jiangxi, followed suit, dropping restrictions limiting purchases in several of its districts.

Changzhou, Jiangsu, which is facing a particularly serious glut, ran a front-page ad on its state-owned newspaper Tuesday exhorting its citizens to jump back into the property market. “Now is the best time to buy a home, as realty prices will not fall any further,” declared the Changzhou Daily... [----]

...Growth in residential real estate investment in recent years has been twice as fast as gross domestic product growth and now amounts to 10.4 percent of the economy, or 5.89 trillion yuan ($949 billion), up from less than 2 percent of the economy in 1997...

[GRG55]

The Politburo and PBOC Blink. Again.

...Even the much vaunted "centrally planned world beating" Chinese economy is having difficulty figuring out how to get off the mercantile + cheap-credit investment driven growth model treadmill. Too many vested interests, too much corrupt money being made.

So there's every reason to believe they'll just keep coming back to it over and over again until something finally breaks...

China Growth Push Risks a Debt Spiral

July 15, 2014

On the eve of the release of China’s second-quarter gross domestic product figure, which is expected to rise 7.4 percent, credit figures show a policy shift toward supporting growth in lieu of controlling a surge in debt and shadow banking.

China’s new loans in June reached 1.08 trillion yuan ($174 billion), compared to 860.5 billion a year ago, while analysts in a Bloomberg News survey had predicted just 955 billion yuan. Aggregate financing, also known as total social financing, reached 1.97 trillion yuan, well above the highest analyst estimate—1.55 trillion yuan—compared to 1.4 trillion yuan in May.

“The government has been concerned more about stabilizing growth recently,” and the credit numbers are a “confirmation of credit easing,” Shen Jianguang, chief Asia economist at Mizuho Securities Asia in Hong Kong, told Bloomberg News. “It’s offsetting the tightening from previous months.”

In order to encourage more lending without moving to a a full-scale easing policy, banking authorities have cut bank reserve requirements and loosened loans to small enterprises and to projects in agriculture and affordable housing. Meanwhile, China’s 30-some provinces have been pursuing stimulus programs, too.

Hebei, for example, has pledged to spend 1.2 trillion yuan ($193 billion), equivalent to 42 percent of the province’s GDP last year, in areas that include railways, power projects, and housing, said the Hebei Daily in a report posted online on June 26.

The northeastern province of Heilongjiang said it will “step up the construction of important infrastructure projects,” spending 300 billion yuan over the next two years on infrastructure and mining, according to a June 23 government statement. And the southern province of Guangxi will invest 630 billion yuan over three years on 166 infrastructure projects, according to a statement issued on July 4.

The renewed efforts to support growth are fanning renewed fears about the perils of too-rapid growth in debt. China’s local governments had accumulated 17.9 trillion yuan ($2.96 trillion) in debt as of June 2013, up 63 percent since the end of 2010 and much faster than the economy’s 40 percent expansion...

[touchring]

Re: Yes Virginia...It's a Bubble...

This cracked me up. I guess we now know how the wealthy Chinese get all their money out to purchase properties in cash worldwide.

I wonder if that means the up and coming Chinese are the only buyers of local properties?

A friend of mine 4 months ago was in the process of buying an apartment/condo in Beijing with his dad (he is an economist here in the US at a university and a Chinese immigrant). He had to go to the Chinese embassy to fill out some documents etc.

I asked "what happens if the Chinese property market collapses?" Especially after this massive run up in the last 5 years.

He said "the Chinese property market never goes down, wages are rising and millions are coming from the countryside into the city."

We shall see.

Multiple risk factors, any of which can bring down a property bubble:

1. Tangshan style earthquake.
2. Middle East oil shock/crisis.
3. War with Vietnam over South China Sea territory.

[ProdigyofZen]

Re: Yes Virginia...It's a Bubble...

This cracked me up. I guess we now know how the wealthy Chinese get all their money out to purchase properties in cash worldwide.

I wonder if that means the up and coming Chinese are the only buyers of local properties?

A friend of mine 4 months ago was in the process of buying an apartment/condo in Beijing with his dad (he is an economist here in the US at a university and a Chinese immigrant). He had to go to the Chinese embassy to fill out some documents etc.

I asked "what happens if the Chinese property market collapses?" Especially after this massive run up in the last 5 years.

He said "the Chinese property market never goes down, wages are rising and millions are coming from the countryside into the city."

We shall see.

[gorinv]

Re: Yes Virginia...It's a Bubble...

Am I the only one who finds the acronym for the CCP's state run television network CCTV amusing

[gorinv]

Re: Yes Virginia...It's a Bubble...

Am I the only one who finds the acronym for the CCP's state run television network is CCTV amusing

[GRG55]

Re: Yes Virginia...It's a Bubble...

I doubt this is as binary as we might imagine.

First, there may be explicit approval and some relaxation of funds transfer capability out of China for the well connected wealthy, as part of an effort to find ways to vent the excess private savings into something other than internal property speculation and shadow banking system investment products, both of which are causing concern with the authorities. Buying gold and various luxury goods inside China can only absorb so much...foreign real estate and perhaps other private investment abroad might be carefully encouraged.

But monitoring and controlling the outflows, once started, might also be problematic in a nation as large, populous, complex and corrupt as China...

Well, well, imagine that...

Secret Path Revealed for Chinese Billions Overseas

By Bloomberg News
July 14, 2014 3:37 AM MT

For years, wealthy Chinese have been transferring billions worth of their money overseas, snapping up pricey real estate in markets including New York, Sydney andVancouver despite their country’s currency restrictions.

Now, one way they could be doing it is clearer. Last week, when China Central Television leveled money-laundering allegations against Bank of China Ltd., the state-run broadcaster’s report prompted the revelation of a previously unannounced government program that enables individuals to transfer their yuan and convert it into dollars or other currencies overseas.

Offered by some banks in the southern province of Guangdong, across the border from Hong Kong, the trial program was introduced in 2011 for overseas property purchases and emigration and doesn’t constitute money laundering, Bank of China said in a July 9 statement. The transfers were allowed by regulators and reported to them, the bank said...

...The issue came to light after CCTV said Bank of China helped customers transfer unlimited amounts of yuan abroad through a product called Youhuitong, which means “superior foreign-exchange channel.”...

...The Guangdong branch of China’s currency regulator, the State Administration of Foreign Exchange, picked Bank of China, China Citic Bank Corp. (998) and a foreign lender to let individuals transfer yuan abroad in a trial the banks were told not to promote, Time Weekly reported in April 2013. A Beijing-based Citic Bank press officer declined to comment on the program.

...Youhuitong has been suspended while the PBOC and its anti-money laundering bureau request records of all previous transactions, according to a person familiar with the product, who asked not to be identified because he wasn’t authorized to speak publicly.

Transfer approval for Youhuitong customers usually takes several weeks to a month, the person said. They need to provide documents showing how the money to be transferred was obtained, such as tax-payment receipts and proof of income, as well as a property-purchase agreement or proof of emigration, he said.

Youhuitong customers would typically deposit yuan with Bank of China at least two weeks before the transfer, the person said. Once approved, the customer and the bank agree on an exchange rate before the funds are moved to an overseas account designated by the customer, he said. Money destined for real estate would go directly to the property seller’s account to ensure the cash won’t be misused, he said...

...Chinese buyers, including people from Hong Kong and Taiwan, spent $22 billion on U.S. homes in the year through March, up 72 percent from the same period in 2013 and more than any other nationality, the National Association of Realtors said in its annual report on foreign home purchases...

...“Clearly the property market wouldn’t nearly be so robust as it is today without mainland money,” Mizuho’s Antos said. “How did they do it? With Bank of China’s help. There has been a tremendous amount of mainland money flowing offshore and it couldn’t have happened without” official approval...

...“We know the demand to move abroad is there,” said ANZ’s Zhou. “Even if you impose various restrictions, the money will find its way out of the country, via underground banks and other means.”

[touchring]

Re: Size of the pile:

Since my wife and I had children, we have been as careful as we can about avoiding Chinese produced or processed food in our house.

It's like Upton Sinclair's "The Jungle" meets Bladerunner.

Not easy to avoid stuff from China.

http://www.naturalnews.com/036584_Wh...uce_China.html

[lakedaemonian]

Re: Size of the pile:

In China, you assume it's fake, adulterated or poor quality unless proven real and verified.

Since my wife and I had children, we have been as careful as we can about avoiding Chinese produced or processed food in our house.

It's like Upton Sinclair's "The Jungle" meets Bladerunner.

[jk]

Re: Size of the pile:

In China, you assume it's fake, adulterated or poor quality unless proven real and verified.

this should provide a huge opportunity for brand-building. part of branding is delivering a reliably standardized product. of course any brands will attract counterfeiters, but there should be ways to make that hard, similar to what's done with circulating currencies.

[touchring]

Re: Size of the pile:

maybe. But maybe not. In how many places was a similar game being played? Is it more reasonable to think this is an isolated event, or representative of the majority of stockyards in China?

In China, you assume it's fake, adulterated or poor quality unless proven real and verified.

Fake eggs.



Gutter oil made into cooking oil



Fake rice

[astonas]

Re: Size of the pile:

so the 'missing' tonnage isnt quite the 'game changer' that some seem to think it is, eh SG?
altho as P_S noted, its easy to get some confusion in calculating such big numbers...
nice find/thanks for that report tho!
that kind of stuff fascinates me...

maybe. But maybe not. In how many places was a similar game being played? Is it more reasonable to think this is an isolated event, or representative of the majority of stockyards in China?