Chinese property is overheating like Dubai 18 months ago
Posted on 02 May 2010 with 3 comments from readers
The Chinese economy is dangerously overheating and a property bubble similar to Dubai 18 months ago has formed. When this bubble pops the implications are far more serious for the global economy.
And yet the story is very similar to the Dubai real estate crash. The Chinese stock market peaked over three years ago and money has been pouring into real estate instead ever since. The government stimulus package after the global financial crisis fueled this boom into a massive bubble.
Maid’s buying
There are plenty of ominous reports of maids taking holidays from their employers to buy property. Is this not the last mad rush by the least informed to over stretch themselves? Is this not like the tourists arriving to buy a few apartments while on holiday in Dubai two years ago?
You only have to look to Dubai to see what comes next. In the past 18 months Dubai property prices have crashed by 50 per cent and the city skyline is full of half-built projects. Only the support of government backed banks keeps developers from going bankrupt, and many thousands are trapped in off-plan purchase schemes that have gone badly wrong.
But Dubai is fortunate in having the UAE as its banker of last resort, or more particularly the super-wealthy Abu Dhabi. What will happen to all those poor maids investing in Chinese property? Who will help them when all their money is lost?
Volatile emerging markets
Emerging markets are given to especially wild business cycles with violent up and down swings. China has been able to use its accumulated reserves to offset a massive collapse in export earnings in the global financial crisis but it has merely shifted its day of reckoning into a domestic property bubble.
Its government is now back peddling as fast as possible. But this genie is hard to put back in the bottle. Even the opening of the Shanghai World Expo 2010, which cost $42 billion to stage, looks like a bigger version of the $21 million September 2010 party opening of The Atlantis Hotel in Dubai, which immediately preceded the real estate market crash.
From an investment perspective shorting China is the way to go, or to avoid this market altogether until the market crashes. Then it would be a great buy for a long-term recovery, just like Dubai today. And some shrewd Chinese real estate investors are already active in Dubai.
3 Comments posted by readers:
Curses and Naughty Words! Our glorious Australian Prime Minister has just bet the Australian economy on the China boom by announcing increased taxes on the resources sector.
Ed Note: Yes but there is logic in this as the resources cannot be moved elsewhere. Australia is a lucky country indeed.
Peter, I don’t know where you’re seeing evidence of maids buying apartments in China but it’s not what I’m reading. I understood apartment acquisition there remained very much limited to the economic stratosphere. And in Dubai, aren’t all the maids foreign “guests”?
I’m back off to China tomorrow or the day after. Will report on how I see things there. What I do feel from personal experience is that if China’s property market sells off it will bounce back. I know of many people who are waiting for the price to correct in China to buy as they feel that they have missed the ride up. Many Chinese in China want homes in China. Heck many of the Chinese working in Dubai work in Dubai to pay off their newly purchased homes bak in China and I know of several working women in Dubai doing this lol..