China Real Estate: The Bubble Will Pop.

Predicting that China will have a real estate crash is like predicting that there will be a snowstorm in Michigan or a hurricane in Florida. The Chinese real estate and stock markets crash ever three to five years, and predicting that they will once again is not a huge deal.

The big question is what happens when the property markets crash, and I really don't see any reason why the next crash will be different from the last four or five. The important thing is that all of the banks and SOE's have a pretty large reserve cushions so when the loans go bad, they can eat the losses, without putting the rest of the financial system at risk.

The issue is not so much whether there is a real-estate bubble and whether/when it will pop, but rather who is saying this, why and what they think a 'bubble' is and what will happen when it 'pops'. Any reference to recent US/international bubbles and their aftermaths is nonsense. Can't compare. Yes there is a real-estate bubble in china. Yes it will pop. So what? There was a bubble two years ago too. There will be another bubble in two to three years. There was a pork-bubble too, but you don't hear anybody about that. Real-estate is like any other get-rich-quick scheme in China. People buy houses, very often with cold hard cash (yes, that exists in China, in obscene amounts in fact). Demand drives up the price, followed by more demand, followed by more price rises. Yet to be built apartments are sold out completely (they say) but for an extra wad of cash you can get the very last one, quickly though, because there are others inquiring too. Apartments that cost $1000 a meter cost $1100 next month, $1300 the month after that. Who doesn't want that quick cash? This goes on until my neighbor pays $3000 a meter for an apartment (yes, paid in cash), bragging how they'll make a killing because next year it will be $10000 a meter. Contrary to the US where banks gave away 100% no-interest, no-repayment loans to knobheads without any assets or income or any hope to ever get any, the have-nots in China do not get to buy any of the much coveted apartments. They get (even more) unhappy, prompting the standard sequence of measures from Beijing (give or take variations on a theme) as have (once again) been put in place this month. People stop buying houses. My neighbor has not been over to brag these past few weeks. Soon, the prices will start to drop. Various people who see their profits evaporate will complain, sue the real-estate firms, who'll throw in free carpet and such. The prices drop even more. My neighbor skittishly takes off when he sees me. In a few months (my guess is August) the prices in my town will hit $555 (RMB 3888) a meter, with big bill-boards going up all over town. The smart ones will start buying again. The government cancels many of the measures. In another few months, the prices will go up again and the whole thing starts again in the same way as it has before. You can set your watch by it. Nothing new here. Like I said, there's also a pork bubble (not currently, but soon), and a fake-Nike clothes bubble, a cooking-oil bubble, instant-noodles bubble, stock bubble, parking space bubble (this one is new) and so on and so on. The overall trend is up, is real and strong, and around/above this trend there's "bubbles". China Economics 101. We'll be buying too when the next dip comes along, as we did in the last dip (December 2008). The trick is to catch the dip, not the top, that's all...

Indeed, the bubble will pop. I rent my Shanghai apartment for 1.2% (pre-tax) of the nominal value the landlord is currently trying to sell it for. Why buy in such a market? Very little good value in China real estate... and no possible upside except speculative asset gain.

The bubble may be unsustainable, but it might not "pop" in the traditional sense. The Chinese government also knows about the game of quantitative easing, and I suspect there is a high probably they are already implementing it.

This is rather one-sided as it seems to fail to account for the factors that mitigate against such an event occurring.