Bull turns into a Mule
"The Chinese housing market is clearly oversupplied, existing housing stock is sufficient for every household to own one home, and we are supplying about 15 million new units a year." said Gan Li, economist and professor at Southwestern University of Finance and Economics in Chengdu, Sichuan and at Texas A&M University in College Station, Texas.
Mr Li interviewed 28,000 households (100,000 individuals) and found that a third of households are involved in peer-to-peer lending with zero-interest loans among friends, or very high interest averaging 34%, viewed as the cost of credit for businesses and households excluded from the formal banking sector, creating the social class known as Fang Nu (Housing Slave). Hat tip to Zero Hedge.
The idea of buying a property with borrowed money didn’t become popular until 2004 when home prices in major cities started rising fast enough to compensate for interest payments, enticing buyers to borrow to buy property, said Liu Yuan, a Shanghai-based researcher at Centaline Property Agency Ltd., China’s biggest real estate brokerage. (ZH Source)
Fang Nu bulls are willing, as long as prices continue to rise. But when prices reverse, so does sentiment. A sentiment shift can be seen in North America's biggest "Asian" city, Richmond BC, a neighbouring municipality on the southern border of Vancouver.
Richmond has an immigrant population of 60%, the highest in Canada. Richmond has 50% of residents identifying as Chinese, the city in North America with the largest proportion of Asians. More than half of its population is of Asian descent, many of whom immigrated in the early 1990s, mostly from Hong Kong, Taiwan, and Mainland China. (Wikipedia)
Not to be deterred: "B.C. real estate firm looks for luxury buyers in China" Most high-end transactions occur on Vancouver’s West Side and the Municipality of West Vancouver. In the luxury market, there were 644 properties that sold for $3-million or higher in the Vancouver area last year, up 47 per cent from 439 homes that traded hands in 2012, according to data compiled by Macdonald Realty. Of homes that sold last year, there were 148 that fetched at least $5-million, compared with 107 sales in that category in 2012. Dan Scarrow, vice-president of corporate strategy at Macdonald Realty Ltd., said he has heard enough anecdotal evidence of well-heeled home buyers with roots in China to make it worthwhile to invest in a Shanghai office.
Meanwhile back in reality; credulous buyers will only appear when prices are rising; when prices reverse, it's painful for the Fang Nu.
From the Vancouver Price Drop blog we have a typical example of a vendor chasing buyers down the slippery slope of price reductions unable to get in front of the slide.
In the Year of the Horse, the advice is to tighten your saddle. The bull has turned into a mule.
History, Charts & Curated Readings
"Progress, far from consisting in change, depends on retentiveness. When change is absolute there remains no being to improve and no direction is set for possible improvement; and when experience is not retained, as among savages, infancy is perpetual. Those who cannot remember the past are condemned to repeat it." George Santayana Vol. I, Reason in Common Sense
"History, real solemn history, I cannot be interested in.... I read it a little as a duty; but it tells me nothing that does not either vex or weary me. The quarrels of popes and kings, with wars and pestilences in every page; the men all so good for nothing, and hardly any women at all - it is very tiresome." Jane Austen spoken by Catherine Morland in 'Northanger Abbey'