Got the above graph from a China Tells post, entitled, “A Comparison between China and US housing Prices.” The post seems to make the argument that housing prices in China are not so high, especially when we compare them with those in the United States:
Is China’s housing price expensive? Depends. Expensive is always a relative concept. This chart compares the housing price in a lot of Chinese cities to that of the United States, and it seems that the housing prices in two countries are quite similar.
Whoa, whoa, whoa. I think this reasoning is horrible. I agree that prices are relative, but what they are really relative to is incomes and on that score there is a huge difference between China and the United States and it is on that score that I have thought China real estate has long been over-priced.
In fact, many years ago, my law firm looked into buying a firm condo in Qingdao, China. At that point, one of our lawyers was living in a very nice condo for which we were paying about $550 a month, nicely furnished, including all utilities, including Internet and cable TV. The cost to buy that condo would have been about $300,000. One of the things that convinced me not to buy was the fact that a similar condo in Seattle would have cost about the same. The difference though is that in Seattle most people with a decent to good job could afford such a condo, but in Qingdao very few could. In Seattle (and I admit that I am speaking totally off the top of my head here), a police officer makes around $80,000 a year and in Qingdao around $4,000. In Seattle, a school teacher makes around $60,000 and in Qingdao around $4,000. In Seattle, a young lawyer makes around $90,000 and in Qingdao it’s more like $4,000. And whenever I would ask one of the senior lawyers in Qingdao who can afford condos like this, they would pretty much just shrug. I always had the sense that a huge swath of these condos were owned by Singaporeans, Hong Kongers and ultra-wealthy mainlanders, all for investment purposes.
Now I know the counter-arguments to the above: that China real estate will always do just fine because real estate has always been viewed as a great investment and it has always been and will always be where Asians want to put their money; that real estate in China has mostly been bought with cash and so is not highly leveraged; and that mainlanders have few other places to put their money. But let me tell you, seeing this chart only reinforces my belief that we were right not to buy that condo in Qingdao.
What do you think? China real estate, buy or sell?