China Real Estate. Newsweek Says It's All Good.
One of the advantages to living in a city without a decent newspaper is that until only a few weeks ago, virtually every article on local real estate would quote a local realtor talking about how the market is fine and how now is the time to buy a house. As a homeowner, reading those articles always made me feel a little bit better.
Lately though, even our two local papers are starting to catch on.
Newsweek is apparently a bit slower as it just came out with an article with all of the requisite quotes from realtors telling us how China is different and why real estate will always be a great investment in China. The article is entitled, "Great Expectations," and subtitled, "Real estate around the world may be on the skids, but China's homeowners are feeling little pain."
One of the best things that ever happened to me occurred during my first year of legal practice. I worked on a massive case representing the FDIC in trying to figure out who was liable for the collapse of Oak Lawn Savings bank, the fourth largest savings and loan in the country. As part of the investigation, I must have deposed at least twenty of Illinois' top real estate developers, and of those twenty, probably eighteen of them had gone under. And of those eighteen, probably fifteen were truly experts in real estates. They had gone under simply because nobody could have predicted interest rates would spike to 20%. I learned one very important lesson from that case: there are no sure things. The corollary of that is that real estate is not a sure thing and that what goes up can come down.
I am not going to make any long term predictions regarding China real estate as that would take a far better grasp of economics, sociology, and demographics than I can muster, but I would urge anyone thinking of buying real estate in China to base their decision on more than just the assessments of self-interested realtors and developers.
For a more realistic assessment on China's housing market, check out this Economic Observer article, entitled, "Wind Knocked out of China's Housing Prices."
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Comments
Every residential property owner in Shanghai surely knows the declining value of their high-rise property. We know the prices per square meter of every major building within a quarter mile radius, often per floor, and if you don't know you have dozens of neighbors, weekly flyers from real estate agents and local news reports to tell you. Values which had trebled over the last seven years are now reduced to a single truth: Now is not the time to sell, and those who can buy have the patience of vultures.
Posted by: Scott Loar | October 13, 2008 12:54 AM
One would have to wonder if the Newsweek has even set foot in China. Property agents and developers will always say that the market is a buying opportunity.
My wife & I plan to buy a place in Beijing in the 2nd half of 2009. I would expect to get deals at 30-50% below the current market price. The official market price may not drop that far but its a bulls@#t number anyway, rigged by various special interest groups.
Posted by: David Oliver | October 13, 2008 3:12 AM
Boy howdy, is this topic a point of interest for me here in Korea, where my 1150 sq. ft. (big by Korean standards) apartment is notionally "valued" at W700,000,000 -- a mere 23 times the median income of W30,000,000 per year.
Now, my apartment is right at the edge of the Central Business District, which makes my commute to the office a 5-10 minute affair in bad traffic. So there's some value to that. Our neighborhood is full of white collar and professional workers who appreciate the close-in location, so maybe the median income in my neighborhood is W60,000,000. Our apartment is still soaring high at 11.5 times that income. Eleven and a half is where Los Angeles property stood before its epic bubble collapse... I'd bet I face a similar 50% decline, which would take my apartment down to only 11 times national median income and 6 or 7 local median income.
Couple that with the shocking decline of the Korean won this month, from 950 to the dollar to 1450 to the dollar, and ol' Brendon looks to be getting wiped out from his smart choice to live and work in Korea.
Posted by: Brendon Carr (Korea Law Blog) | October 24, 2008 12:55 AM