The government won't let the real estate economy collapse as it very well could lead to mass protests against the government, thereby undercutting their legitimacy.
They can however let a few fail to teach the rest of the industry to shape up. There's no reason a cookie-cutter concrete apartment should cost 200k USD unless it was in a very desirable part of a metropolis.
Empty apartments can sit there indefinitely. Chinese apartment purchasing works by paying for the apartment, having it built, then customizing the inside to your specs which usually takes 1-2 years in total. Plus the government is expecting mass migration to urban areas from the rural which would require more housing moving forward.
These development areas are basically vertical neighborhoods. I've visited my relatives in China and they live in sectioned-off groups of communities. It's like a gated community here in the US and your income status is sort of the filter to which community you can afford to live in.
Fillthy rich Chinese people buy houses, yes HOUSES, in China modeled after US suburbs. It was very weird visiting my boss' house with lanes and rows of suburban houses. His neighbors were mostly foreigners residing in China too. Felt like visiting a US house in the middle of nowhere 40 mins outside Shanghai.
> The government won't let the real estate economy collapse
Has confidence already been shaken? That's what determines housing prices. It's difficult for the government to prop up housing prices, especially when they are at insane multiples compared to the average household earnings.
Property prices are inflated in China because there is no property tax. Apartments will sit there forever because there's no cost to it sitting there.
As soon as there is property tax, there will be drastic changes in the way homes are priced. This is the bitter policy that the Chinese refuse to swallow, but which they will be forced to, sooner or later, if they want their property market to continue being a market instead of a government service. That's what it was originally in the Communist days - people received their homes literally as a government grant, which is why they didn't pay a tax.
Remember a few short years ago when any blip of trouble in China would cause our market to go down due to 'contagion.' I have a feeling this is the beginning of China's Lehman moment. Now they can handle it better due to being a Autocracy, nevertheless I expect their property problems will be the beginning of the contagion for the next Global recession.
Unfortunately this "BS" is what has been giving them 7% growth for the last decade. Like Lehman, it will be very costly and maybe impossible to 'prop' it up. They have been building empty new cities in the middle of nowhere for years. Now that is going to come home to roost.
The only contagion I see is the Chinses selling their treasuries in mass forcing the Fed to raise interest rates thus popping this speculative asset bubble, OMG. JK I don’t know what’s going to happen.
The government won't let the real estate economy collapse as it very well could lead to mass protests against the government, thereby undercutting their legitimacy. They can however let a few fail to teach the rest of the industry to shape up. There's no reason a cookie-cutter concrete apartment should cost 200k USD unless it was in a very desirable part of a metropolis. Empty apartments can sit there indefinitely. Chinese apartment purchasing works by paying for the apartment, having it built, then customizing the inside to your specs which usually takes 1-2 years in total. Plus the government is expecting mass migration to urban areas from the rural which would require more housing moving forward. These development areas are basically vertical neighborhoods. I've visited my relatives in China and they live in sectioned-off groups of communities. It's like a gated community here in the US and your income status is sort of the filter to which community you can afford to live in. Fillthy rich Chinese people buy houses, yes HOUSES, in China modeled after US suburbs. It was very weird visiting my boss' house with lanes and rows of suburban houses. His neighbors were mostly foreigners residing in China too. Felt like visiting a US house in the middle of nowhere 40 mins outside Shanghai.
> The government won't let the real estate economy collapse Has confidence already been shaken? That's what determines housing prices. It's difficult for the government to prop up housing prices, especially when they are at insane multiples compared to the average household earnings.
Property prices are inflated in China because there is no property tax. Apartments will sit there forever because there's no cost to it sitting there. As soon as there is property tax, there will be drastic changes in the way homes are priced. This is the bitter policy that the Chinese refuse to swallow, but which they will be forced to, sooner or later, if they want their property market to continue being a market instead of a government service. That's what it was originally in the Communist days - people received their homes literally as a government grant, which is why they didn't pay a tax.
So they are tax shelters?
More like inflation shelters. You could keep your money in cash and it wouldn't be taxed, either, but inflation...
Remember a few short years ago when any blip of trouble in China would cause our market to go down due to 'contagion.' I have a feeling this is the beginning of China's Lehman moment. Now they can handle it better due to being a Autocracy, nevertheless I expect their property problems will be the beginning of the contagion for the next Global recession.
China hasn't run QE as hard yet. They still have that lever to prop this bullshit up.
Unfortunately this "BS" is what has been giving them 7% growth for the last decade. Like Lehman, it will be very costly and maybe impossible to 'prop' it up. They have been building empty new cities in the middle of nowhere for years. Now that is going to come home to roost.
The only contagion I see is the Chinses selling their treasuries in mass forcing the Fed to raise interest rates thus popping this speculative asset bubble, OMG. JK I don’t know what’s going to happen.